Allowed

Punjab State Civil Supplies Corp. etc. v. M/S Durga Rice Mills and Others

Punjab & Haryana HC9 Sept 2009FAO/1615/2007

Case brief

AI extract

What is this about?

The High Court allowed an appeal against a dismissal of a Section 34 petition. It held that disputes regarding specific costs under a contract were expressly reserved for the Managing Director, not arbitrators. Consequently, the arbitrator lacked jurisdiction over these excepted matters, and both underlying awards were set aside.

What did the court decide?

Set aside the award dated 30.10.2002 and the award dated 19.09.2003 and the judgment dated 12.10.2006. Proceedings remanded to the Managing Director.

Punjab State Civil Supplies Corp. etc. Vs M/S Durga… — Arbitration | Punjab & Haryana HC (2009)

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FAO No. 1615 of 2007 1

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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FAO No. 1615 of 2007 Date of decision: September 09, 2009

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Punjab State Civil Supplies Corporation Limited and another........ Appellant

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Versus

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M/s Durga Rice Mills and others

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.......Respondent(s)

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Coram: Hon'ble Ms Justice Nirmaljit Kaur

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-.-

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Present: Mr. H N S Gill, Advocate for the appellants

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Mr. Mukund Gupta, Advocate for the respondent-Miller

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-.-

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Whether Reporters of local papers may be allowed to see the judgment?

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To be referred to the Reporter or not?

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Whether the judgment should be reported in the Digest?

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Nirmaljit Kaur, J.

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This is an appeal against the judgment dated 12.10.2006 passed by the Additional District Judge, Chandigarh vide which the petition under Section 34 of the Arbitration and Conciliation Act, 1996 filed by the appellant against the award dated 19.09.2003 was dismissed.

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While challenging the impugned judgment, learned counsel for the appellant-PUNSUP submitted that while passing of the Award dated 19.09.2003, the Arbitrator has refused to proceed with the reference in view of the fact that the arbitration proceedings between the parties, as per the

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FAO No. 1615 of 2007 2

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agreement, already stand decided by another Arbitrator, who has passed away. It was stated that rather no award was passed by Shri S C Goyal and it was on that account that the matter was referred to Shri J.P.S. Puri, Arbitrator by the appellant-PUNSUP. It was further stated that the respondent miller failed to mill whole of the paddy into rice and also failed to deposit it within the stipulated period. The appellant-PUSUP had to sell un-milled paddy at a throwaway price, which caused the loss to the tune of Rs.1,93,82,550/- to the PUNSUP. The Arbitrator has erred by not allowing PUNSUP to recover the said amount, along with the interest from the respondent miller. Lastly, it was pleaded that in para 6 of the claim petition, a specific objection was raised. It was alleged that the dispute has arisen between the parties, which was referable to the arbitration as per terms and conditions of the agreement. The claim and dispute herein was that the respondent miller did not mill the fully quantity of the paddy and, as such, was liable to pay the economic cost for the same. It failed to deposit the rice within the stipulated time. If it is so, the decision of the Managing Director was to be final in view of clause 6 of the agreement. As such, the dispute was beyond the purview of the arbitration.

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Attention of the Court has been invited to Clauses 5(iii) and 6(iii) of the agreement, which read as under:-

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“ Clause 5 : xx (i) xx (ii) (iii) In case, there is shortfall in the recovery of rice provided in sub clause (i) above, the miller shall pay to the PUNSUP the cost of paddy equivalent to the short fall at the rate of 1½ time the economic cost of paddy.

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Clause 6 :

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FAO No. 1615 of 2007 3

(ii)

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(iii) The miller shall complete delivery of rice within 10 days issuance of paddy to him and rice due to the PUNSUP on the total quantity of paddy issued to him or in joint custody released at regular interval shall be delivered not later than milling 28^th February, 1995. the miller shall further ensure milling of PUNSUP paddy and delivered of rice in the following manner:

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October/November	:	20%
December :	26%
January :	26%
February :	28%

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In the event of his failure to supply rice within the stipulated period, he shall be liable to for an interest @ 21% on the basis of economic cost of left over quantity/stocks of paddy/rice. The decision of Managing Director in this behalf shall be final.

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As per Clause 17 of the Agreement, all the disputes and differences arising out of or in any manner touching or concerning the agreement, whatsoever (except as to any matter the decision of which is expressly provided in the contract) shall be referred to the Managing Direction, which reads as under:-

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“17. ARBITRATION: All the disputes and difference 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 sole arbitration of the Managing Director or any person appointed by her in this behalf......”.

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It is obvious from the reading of the aforementioned Clauses 5 (iii), 6 (iii) and 17 of the agreement that the decision with respect to the

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FAO No. 1615 of 2007 4

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dispute in hand is exclusively provided for in the agreement, itself, and is to be given by the Managing Director, PUNSUP, himself, and whose decision shall be final. Thus, the fact that the dispute in hand was to be determined by the Managing Director, himself, and the same could not be referred to the Arbitrator being an excepted matter, is clear from Clause 17, referred to above.

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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 :-

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“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).

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“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

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FAO No. 1615 of 2007 5

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different ground from the error apparent on the face of the award.

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(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 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.”

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The High Court issued a direction by an order dated 16-6-1988 referring the disputes for arbitration in F.A.O. No.2666 of 2007 4 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.”

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This Court, in another similar case of 'Shree Krishna Rice Mills v.

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Punjab State Co-op. Supply & Markt. Fed. Ltd . 2003 P.L.J. 341 , held as follows in para 10 of the judgment :-

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“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.”

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Thus, a combined reading of Clauses 5(iii), 6(iii) and 17 of the

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FAO No. 1615 of 2007 6

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Agreement, referred to above, clearly shows that all the disputes 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 17 of the Agreement. It is duly provided in Clause 6 (iii) that in the event of the miller's failure to supply rice within the stipulated period, the miller shall be liable for an interest of 21% on the basis of economic cost of less quantity/stock of paddy and Clause 17 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.

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In the facts of the present case, wherein, it is already disputed as to whether the award passed by the earlier Arbitrator, namely, Shri S C Goel, is valid or not and as to whether the subsequent Arbitrator, namely, Shri JPS Puri could have refused to proceed with the reference in view of fact that the earlier Arbitrator, Shri S C Goel, has already given his award, even then, it would be more proper to set aside the Award dated 30.10.2002 passed by Shri S C Goyal (since deceased), Award dated 19.09.2003 passed by another Arbitrator, Shri JPS Puri and the judgment dated 12.10.2006 passed by the Additional District Judge, Chandigrh with liberty to the Managing Director,

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FAO No. 1615 of 2007 7

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PUNSUP to proceed with the matter in accordance with law, being an appropriate authority to decide the dispute in hand as per the terms and conditions of the agreement, himself, and not to refer the same to the Arbitrator being ‘excepted matter’. Ordered accordingly.

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Disposed off in the above terms.

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(Nirmaljit Kaur) Judge

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September 09, 2009 mohan

Punjab State Civil Supplies Corp. etc. v. M/S Durga Rice Mills and Others

Case brief

What is this about?

What did the court decide?

Punjab State Civil Supplies Corp. etc. v. M/S Durga Rice Mills and Others

Case brief

What is this about?

What did the court decide?

What the court decided

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