Allowed

M/S Shakti Traders and Ors. v. Pb. State Civil Supplies Corp. and Ors.

Punjab & Haryana HC6 Aug 2009FAO/2666/2007

Case brief

AI extract

What is this about?

The High Court allowed the appeal, set aside the District Judge's order and the arbitrator's award. It held that interest for delayed rice supply was exclusively to be decided by the Managing Director per the contract, so the arbitrator had no jurisdiction to decide it.

What did the court decide?

Appeal allowed; impugned order of the District Judge and the arbitrator's award set aside; Managing Director at liberty to proceed afresh.

M/S Shakti Traders and Ors. Vs Pb. State Civil Supplies… — Arbitration | Punjab & Haryana HC (2009)

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F.A.O. No.2666 of 2007

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

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F.A.O No.2666 of 2007

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Date of Decision: 06.08.2009

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M/s Shakti Traders & Others

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....Appellants

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Versus

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Punjab State Civil Supplies Corporation Ltd. (PUNSUP) & others

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...Respondents

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CORAM : Hon'ble Ms. Justice Nirmaljit Kaur

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Present:Mr. J.R. Singla, Advocate for the appellants.

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Mr. Aman Chaudhary, Advocate for the respondents.

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Whether Reporters of Local Newspapers may be allowed to see the judgment ?

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To be referred to the Reporters 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 order dated 12-02-2007 passed by District Judge, Patiala, dismissing the petition under Section 34 of the Arbitration and Conciliation Act, 1996, filed by the appellants vide which the award of the Arbitrator was upheld. The solitary ground raised by learned counsel for the appellants is that the award is without jurisdiction as the designated authority has no power to appoint an Arbitrator to adjudicate upon a matter which has been excluded from the Arbitration Clause and the same is explicit on the face of the alleged agreement. The matter, in dispute, pertains to the exclusive jurisdiction of the Managing Director

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F.A.O. No.2666 of 2007

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himself. The only dispute referred to the Arbitrator was with respect to the late delivery of rice. The attention of the Court has been invited to Clause 9 of the Agreement, which reads as under :-

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“ 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.”

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It is obvious from the reading of Clause 9 that the decision with respect to the delayed supply of rice is provided in the agreement itself. The matter regarding payment of interest on account of delayed supply of rice, therefore, is a matter, the decision of which is exclusively provided for and is to be given by the Managing Director, PUNSUP whose decision shall be final as per Clause 9 of the Agreement. The fact that this matter 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 22 of the Agreement dated 03.10.1996 which relates to the Arbitration, reads as under:-

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“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 Arbitration of the M.D., PUNSUP or any person appointed by him in this behalf.....”

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Hon'ble the Apex Court, in the case of Food Corporation of India

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F.A.O. No.2666 of 2007

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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 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

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F.A.O. No.2666 of 2007

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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 te 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 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 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

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F.A.O. No.2666 of 2007

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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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Learned counsel for the respondents, however, submitted that no grievance has been caused to the appellants as the decision of the Arbitrator is not beyond what has already been provided in the agreement i.e. 21% on the basis of economic cost of less quantity/stock of paddy on account of delay of delivery. However, the said argument does not hold good, in view of the provisions in the statute. As per Section 34 of the Arbitration and Conciliation Act, 1996, the arbitral award can be set aside by the Court, if it is proved that it contains decision on matters beyond the scope of submission to arbitration. The reference of the dispute to the Arbitrator without jurisdiction will have to be set aside. The said Section 34 of the Arbitration and Conciliation Act, 1996 is reproduced below :-

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“34. Application for setting aside arbitral

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award. - (1) Recourse to a Court against an arbitral awardmaybe made only be an application for setting aside such award in accordance with sub-section(2) and sub-section (3).

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(2) An arbitral ward may beset aside by the

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Court only if-

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(a) the party making the application

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furnishes proof that-

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(i)XX XXX XXX (ii)XXX XXX XXX (iii)XXX XXX XXX

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(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration:

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Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award

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F.A.O. No.2666 of 2007

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which contains decisions on matters not submitted to arbitration may be set aside;”

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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 appeal is, accordingly, allowed and the order of the District Judge, Patiala dated 12-02-2007, as well as, the award dated 12-04-2002 is also set aside. The Managing Director, PUNSUP is, however, at liberty to proceed afresh in accordance with law.

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(NIRMALJIT KAUR) JUDGE

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06-08-2009 gurpreet

M/S Shakti Traders and Ors. v. Pb. State Civil Supplies Corp. and Ors.

Case brief

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M/S Shakti Traders and Ors. v. Pb. State Civil Supplies Corp. and Ors.

Case brief

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