FAO No. 4374 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH -- Date of decision: November 10, 2009 1. FAO No. 4374 of 2007 M/s Narula Rice Mills ........ Appellant Versus The Punjab State Civil Supplies Corporation Ltd. And others ...Respondent(s) 2. FAO No. 4724 of 2007 M/s Narula Rice Mills ........ Appellant Versus The Punjab State Civil Supplies Corporation Ltd. And others ...Respondent(s) Coram: Hon'ble Ms Justice Nirmaljit Kaur -.- Present: Mr. Vikas Kumar, Advocate for the appellant Ms Ekta Thakur, Advocate for respondents No. 1 and 2 -.- 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. Vide this order, both the aforementioned appeals shall stand FAO No. 4374 of 2007 2 disposed of as common question of law and facts are involved and also that these appeals have arisen from the common order dated 04.01.2007 passed by the Additional District Judge, Ferozepur, dismissing the petition of the appellant filed under Section 34 of the Arbitration and Conciliation Act, 1996 (in short the 1996 Act). However, for the sake of reference, the facts are being taken from FAO No. 4724 of 2007. While challenging the impugned order, learned counsel for the appellant submitted that the matter in dispute is covered under the excepted matter and, therefore, should not have been referred to the Arbitrator. The appointment of the Arbitrator by the Managing Director is illegal. The case of left over quantity/stocks of paddy and interest was to be decided by the Managing Director, himself. However, with respect to the case of gunny bags and other items as per notification, the rules of the State Government were to be followed and therefore the decision having been duly provided, the Managing Director was the only competent authority. Learned counsel for the respondents submitted that although the dispute with regard to the shortage of the paddy was no doubt covered under the excepted matters, but the dispute with respect to gunny bags and other items is not an excepted matters and hence if at all only the dispute with respect to the shortage of paddy can be referred to the Managing Director. The award with respect to the other dispute is liable to be upheld. Learned counsel for the parties have been heard. The dispute in the present case before the Arbitrator is as follows:- “The respondent had supplied 5,918 qntls of rice of grade A FAO No. 4374 of 2007 3 filled in 6,250 bags to the FCI up to 29.02.2000 and 1,177,200 qntls of rice of grade A quality filled in 1310 bags during the period 01.03.2000 to 31.08.2000. The respondent did not supply the remaining rice weighing 7,496,54,600 qntls of grade A variety. Thus, by converting the above balance rice into paddy, the paddy comes to the tune of 11,024,33,2000 qntls of grade A variety, which remained with the respondent regarding which the claimants are entitled to recover the economic costs of the above paddy from the respo9ndent along with interest at the rate of 21% p.a. On the value of rice supplied by respondent late i.e. between 01.03.2000 to 31.08.2000, which was after the stipulated period an amount of Rs.88,29,566/- 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 Sr. No. Particulars Amounts 1 Economic cost of 11024 qutls GR-A paddy at the provisional rate of Rs.646.65 per q. Rs.71,28,884 2 Cost of 8493 empty gunny bags as per details attached Rs.1,18,169 3 Sales tax @ 4.4% on cost of empty gunny bags Rs.5,199 4 T.D.S. of Income Tax @ 2.34% Rs.5,828 5 Quality cut Rs.1,090 Total Rs.72,59,170 Details of amount payable to the respondent Mill Sr. No. Particulars Amount 1 Milling charges of 10434,11,700 qts paddy @ 23.87 per Qntl Rs.2,49,062 2 Stitching charges of 7560 bags @ Re.1 per bag Rs.7,560 Total Rs.2,55,622 Balance amount recoverable from the respondent Mills (Rs.72,59,170-Rs.2,56,622) Rs.70,02548 FAO No. 4374 of 2007 4 Interest on late delivery of rice Rs.1,81,419 Interest @ 21% from 01.03.2000 to 28.02.2001 Rs.14,70,535 Interest @ 30% from 1.03.2000 to 30.4.2001 Rs.1,75,064 Total amount recoverable from the respondent Mill as on 30.04.2001 Rs.88,29,566 Clause 22 of the agreement, under which reference of the dispute was made to the arbitrator by the Managing Director of respondent No. 1, reads as under:- “22. Arbitration All the disputes and difference arising out of or in any manner touching or concerning this agreement whatsoever (except as to any matter decision of which expressly provided for in the contract) shall be referred to sole arbitration or 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 to 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 matter in dispute 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 an Arbitrator, such a person shall be entitled to proceed with reference from the stage where it was left by this predecessor.” Clause 8 (iii) and Clause 9(iii) of the agreement read as under:- 8 (iii) In case, there is a shortfall in the recovery of rice FAO No. 4374 of 2007 5 provided in sub clause 1 (i) above the miller shall pay to the PUNSUP the price of rice fixed by F.C.I. Plus interest at the rate of 21% from the date of actual realisation equivalent to the shortfall. 9 (iii)The miller shall complete delivery of rice within 10 days of the issuance of paddy, to him and rice due to PUNSUP on the total quantity paddy issued to him 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 quality/stock of paddy. The decision of the M.D. PUNSUP in this behalf shall be final. The argument raised by the learned counsel for the respondents is that although the dispute with respect to shortage of economic costs is an excepted matter, the dispute with regard to gunny bags cannot be referred to the Managing Director as Clause 17 does not provide that it has to be decided by the Managing Director. I do not find any merit in the argument raised by the learned counsel for the respondents, inasmuch as, the decision with respect to the dispute of gunny bags is duly provided in Clause 17 of the agreement, itself, which reads as under:- FAO No. 4374 of 2007 6 Clause 17 of the agreement reads as under:- “17. 60% rice shall be supplied in 50 kgs gunny bags to be made available by the miller, the cost of which shall be reimbursed at the rate fixed by the Government or India from time to time. Remaining 40% rice shall be packed in 95 kgs. gunny bags in which paddy is supplied by PUNSUP. The rice shall be packed in standard size double lines machine stitched bags. The rice miler shall keep proper account of all gunny bags. The bags found surplus after the filling of rice shall be retained by the miller and the cost thereof shall be paid by the miller to PUNSUP at the rate to be fixed by the State Government from time to time”. As per Clause 22 of the agreement, referred to above, it is apparent that 'All the disputes and difference arising out of or in any manner touching or concerning this agreement whatsoever (except as to any matter decision of which expressly provided for in the contract) shall be referred to sole arbitration or the Managing Director or any person appointed by him in this behalf'. A perusal of Clause-22 and Clause 17 of the agreement makes it clear that the decision with respect to the cost of surplus gunny bags is duly provided in Clause 17, which spells out that “the same shall be paid by the miller to the PUNSUP by the Statement Government time to time.” Thus, the method by which the cost of the gunny bags has to be fixed stood provided in the agreement, itself. Clause-22 also shows that in case the decision of dispute is already provided in the agreement, the same shall not be referred to FAO No. 4374 of 2007 7 the sole arbitration. Thus, from the agreement, it is evident that the present dispute with regard to gunny bags was to be decided by the Managing Director, himself and, therefore, there was no requirement to refer the same to the sole arbitration. 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 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 FAO No. 4374 of 2007 8 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 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. In view of the discussion made above, the order dated 04.01.2007 passed by the Additional District Judge, Ferozepur and the Award dated 24.09.2003 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 FAO No. 4374 of 2007 9 matter, in accordance with law. (Nirmaljit Kaur) Judge November 10, 2009 mohan