Punjab-Haryana High Court
M/S New Sharma Rice Mills vs Punjab Agro Food Grains Corporation on 10 September, 2009
Author: Nirmaljit Kaur
Bench: Nirmaljit Kaur
F.A.O No.1231 of 2009 1
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH.
F.A.O No.1231 of 2009
Date of Decision: 10.09.2009
M/s New Sharma Rice Mills
....Appellant
Versus
Punjab Agro Food Grains Corporation, Sangrur and another
...Respondents
CORAM : Hon'ble Ms. Justice Nirmaljit Kaur
Present:- Mr. H.S. Saggu, Advocate
for the appellant.
Mr. Somesh Gupta, Advocate
for respondent No.1.
*****
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 15-10-2008 passed by District Judge, Sangrur, vide which, the Objection Petition under Section 34 of the Arbitration and Conciliation Act, 1996, against the award dated 10-03-2005, was dismissed.
As per the agreement between the appellant firm and respondent-Corporation for milling of paddy during the crop year 1998-99 and rice was to be delivered to the FCI in the account of respondent Corporation upto 28-02-1999, subsequently extended upto 31-12-1999, the appellant-firm had delivered the entire due rice but the respondent- Corporation was not satisfied and alleged shortage. The claim of the F.A.O No.1231 of 2009 2 respondent-Corporation wholly related to shortage of rice delivered to the FCI, which is covered under Clause 9 of the Agreement between the parties. According to Clause 9 of the agreement above said available on the record of Arbitrator, the decision regarding payment for any shortage of due rice was to be made by the Managing Director of the respondent- Corporation and decision was to be final. Clause 9 of the Agreement is reproduced below :-
" In the event of his failure to supply rice within the prescribed specifications, the miller shall be liable to pay the PUNSUP for the quantity of rice short supplied a penalty at the rate of 1-1/2 times the economic cost of the converted variety of paddy and decision of the Managing Director, PUNSUP, Chandigarh after referred to as the M.D., PUNSUP in this behalf shall be final." This clause further provides that "in the event of his failure to supply rice within the stipulated period, he shall be liable for an interest of 21% on the basis of economic cost of less quantity/stock of paddy. The decision of the M.D., PUNSUP in this behalf shall be final."
According to Clause 22 of the agreement, all disputes could be referred for arbitration except those matters for which decision is expressly provided by the contract. The decision regarding shortage was to be made by the Managing Director as per Clause 9 of the agreement. As such, dispute regarding shortage was an excepted matter and could not be referred to Arbitrator. Relevant Clause 22 of the agreement is reproduced below :-
"22. Arbitration : All the disputes and the 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 in the contract), shall be referred to the F.A.O No.1231 of 2009 3 Arbitration of the M.D., PUNSUP or any person appointed by him in this behalf....."
Hon'ble the Apex Court, in the case of Food Corporation of India vs. Surendra, Devendra & Mahendra Transport Co., 2003(4) Supreme Court Cases 80, held that the award was an excess of jurisdiction in respect of certain claims specifically barred by agreement and relying on the judgment, rendered by Hon'ble the Apex Court in the case of Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. 1999 (9) SCC 283, held as under :-
" We find substance in this submission.
Arbitration clause (XX) provided that all disputes and differences arising out of or in any way touching or concerning the agreement whatsoever could be referred to the sole arbitration of a person appointed by the Managing Director except "as to any matter the decision of which is expressly provided for in the contract". Clause (XII) of the agreement provided that the contractor would be liable for all costs, damages, demurrage, wharfage charges and expenses etc. or transit loss suffered by the Corporation and the Senior Regional Manager shall be the sole authority to determine the said failures on the part of the contractors or the loss caused thereby, thus excluding the reference to the arbitrator for the decision of these disputes. This Court in Rajasthan States Mines & Minerals Ltd. Case has held:(SCC p.310, para 44).
"44(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in F.A.O No.1231 of 2009 4 the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction."
7. The High Court issued a direction by an order dated 16-6-1988 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 States Mines & Minerals Ltd. Case. 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."
This Court, in another similar case of Shree Krishna Rice Mills v. Punjab State Co-op. Supply & Markt. Fed. Ltd. 2003 P.L.J. 341, held as follows in para 10 of the judgment :-
"10. Therefore, according to this clause, if the decision of any matter, which is expressly provided for in the contract, shall not be referred to the Arbitrator of the M.D. or any other person appointed by him in this behalf."
Thus, a combined reading of Clause 9 and Clause 22 of the Agreement clearly shows that all dispute between the Punjab State Civil Supplies Corporation Ltd. (PUNSUP) and the Miller were liable to be referred for Arbitration concerning the agreement except disputes regarding the matter for which the decision has been expressly provided for in the Contract under Clause 22 of the Agreement. It is duly provided in Clause 9 that in the event of the miller's failure to supply rice within the F.A.O No.1231 of 2009 5 stipulated period, he shall be liable for an interest of 21% on the basis of economic cost of less quantity/stock of paddy and Clause 22 of the Agreement duly provides that in such a situation, the matter shall be referred to the Arbitration of the M.D., being an excepted matter. Thus, the Managing Director had no authority to refer the aforesaid dispute to the Arbitrator nor the Arbitrator had any jurisdiction to continue with the proceedings under any circumstances. The Appellate Court while holding that there is no bar for the PUNSUP to refer the matter to the arbitration has not appreciated the terms of the Contract and misunderstood the same. The findings of the District Judge, therefore, cannot be sustained.
A number of appeals, wherein, a similar question was raised, have been decided by this Court vide Order dated 28-07-2009, rendered in FAO No.3521 of 2007, titled as District Food and Supplies Controller, Moga vs. M/s Aggarwal Rice Mills, Baghapurana, Distt. Moga.
In view of the above discussions, it is held that the dispute with respect to the payment of interest on account of the delayed supply is covered by Clause 9 and Clause 22 of the Agreement and it was to be decided by the Managing Director himself and not referred to the Arbitrator. The award is, therefore, without jurisdiction. The appeal is, accordingly, allowed and the order of the District Judge, Sangrur dated 15-10-2008, as well as, the award dated 10-03-2005 is also set aside. The Managing Director, PUNSUP is, however, at liberty to proceed afresh in accordance with law.
(NIRMALJIT KAUR) 10.09.2009 JUDGE gurpreet