Judgment:
Nirmaljit Kaur, J.
1. Vide this order, all 16 connected aforementioned appeals shall stand disposed of, as common question of law and facts are involved and also that these appeal have arisen from the common order dated 22.02.2007 passed by the Additional District Judge, Moga. However, for the sake of reference, the facts are being taken from FAO No. 3521 of 2007.
2. The respondent herein entered into an agreement with the appellant- District Food and Supplies Controller (hereinafter to be referred as 'DFSC'). The respondent-Rice Miller had agreed to mill the paddy supplied by the appellant DFSC, as per the terms and conditions contained in the agreement. The Rice Miller was required to deliver the stock of the rice within the stipulated time, as provided in the agreement. A dispute arose between the parties qua shortage as well as late delivery of the rice by the respondent-Rice Miller. The appellant appointed a sole Arbitrator, who ordered the recovery of an amount of Rs. 12,21,290/-, along with interest at the rate of 12% per annum from 01.09.1997 till its realisation, vide Award dated 21.12.2001. Dissatisfied with the aforesaid award passed by the Arbitrator, the respondent filed petition under Section 34 of the Arbitration and Conciliation Act, 1996, which was accepted and the award was set aside, leaving the parties to seek any other remedy if permissible under the law. Further liberty was also granted to the Director to receive back the record of the Arbitration proceedings on moving application before the Court and decide the dispute, as per agreement. Dissatisfied with the order, the appellant-State has, therefore, challenged the order dated 22.02.2007 passed by the Additional District Judge, Moga, setting aside the Award.
3. The solitary argument raised by Mr. Navdeep Sukhna, Assistant Advocate General, Punjab is that the appellant-DFSC had rightly referred the matter to the Arbitrator, for adjudication, in accordance with the terms of the agreement, wherein it was expressly provided that the party in case of any dispute and difference arising out of the agreement, the same shall be referred to the sole arbitration of the Director or any other person appointed by him in this behalf. It was further submitted that the dispute was with respect to the less weight of the rice delivered by the respondent-rice miller after milling the paddy, which was within the ambit of the arbitration clause.
4. Learned Counsel for the respondent, on the other hand submitted that procedure as laid down in Section 4 of the Act had not been followed and that Arbitrator was having no jurisdiction to entertain the claim because it was covered under excepted matter regarding which the remedy has been provided in the agreements, itself, and any dispute qua the subject matter regarding recovery as claimed by DFSC was to be decided by as agreed and decision of the Director was to be final. But the Director has not decided the claim of the petitioners and had abdicated his powers as he had referred the matters to the Arbitrator who had passed decision on the excepted matters.
5. Learned Counsel for the parties have been heard. Learned State counsel does not dispute the fact that it has been duly provided in the Contract that in case of shortage or delay, the recovery can be made at the rate of 1.5 times of the economic costs of the shortage in the paddy and if the Rice miller failed to supply the rice within time, DFSC shall be entitled to interest at the rate of 21% per annum on the economic costs of the left over quantity of the paddy rice for which, the decision of the Director of the DFSC will be final.
6. It is also not disputed that the dispute was only with respect to less weight of the rice delivered by the respondent rice miller after milling the paddy. Thus, the decision of the dispute, in question, is already available under Clauses 5 and 6 of the agreement, itself, therefore, the same was not required to be referred to the Arbitrator. The relevant portion of Clauses 5 and 6 of the agreement is reproduced below:
Clause 5:
(i) and (ii) xxx xxx
(iii) In case, there is shortfall in the recovery of rice provided in sub Clause (i) above the miller shall pay to the Government the cost of paddy equivalent to the shortfall at the rate of 11/2 times the economic cost of paddy.
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%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.
7. Thus, the aforesaid dispute or claim of shortage was already covered under the agreement between the parties and there was no need to refer it to the arbitrator, for adjudication. This being the only dispute, a combined reading of Clauses 5(iii) and 6(iii) of the agreement, clearly shows that the provision to recover the shortages in paddy has bean duly provided in the agreement, itself, therefore, there was no requirement to refer the same to the Arbitrator. Thus, the dispute regarding which the remedy is made available in the agreement, itself, the decision given by the Director would be final and he may pass the award for decision regarding short and reference to the Arbitrator, was illegal. Therefore, it is not in dispute that (a) in the event of shortage of paddy and if the Rice Miller fails to supply the rice within the stipulated time, the DFSC shall be entitled to recover the amount at the rate of 1.5 times of the economic costs of the shortage, along with interest at the rate of 21% per annum, and (b) the two aspects shall be determined by the Director, himself, who shall be the final authority.
8. Learned Counsel for the respondent has placed reliance on the judgement of the Apex Court in the case of 'Food Corporation of India v. Surendra, Devendra and Mahendra Transport Co.' (2003)133 P.L.R. 843, wherein it was observed as follows:
6. Aggrieved against the order of the High Court, the present appeal has been filed. Counsel appearing for the Corporation relying upon the judgement of this Court in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises and Anr. : 1999(9) S.C.C. 283, contended that the Arbitrator acted in excess of his jurisdiction in entering upon a dispute and making an award of a claim which was not permitted to be referred to the Arbitrator under the contract. According to him, the claim made and given by the Arbitrator under issue Nos. 3 and 5 regarding transit loss and demurrage and wharfage charges could not be made as the same had been specifically excluded under Clause XX read with Clause XII of the agreement. 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, demurrages, wharfage charge and expenses etc. or transit loss suffered by the Corporation and the Sr. Regional Manager shall be the sole authority to determine the said failures on the part of the contractors of the loss caused thereby, thus excluding the reference to the Arbitration for the decision of these disputes. This Court in Rajasthan State Mines and Minerals Ltd. 's case (supra) has held:
(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 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 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.
9. In a case 'Shree Krishna Rice Mills v. The Punjab State Co-op Supply and Marketing Federation Ltd.' : (2003-3)135 P.L.R. 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 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.
10. Thus, it is apparent from the above that the all disputes between the DFSC were liable to be referred to the Arbitrator concerning the agreement except disputes regarding the matters, the decision of which is expressly provided for in the contract. The decision with regard to 1.5 times of the economic costs and interest at the rate of 21% per annum having been clearly provided in the agreement for the recovery of shortage of rice and in case the same have not been supplied within the specified period, the proceedings before the Arbitrator were illegal. In such an event, the Director did not have any authority to send the matter to the Arbitrator, for adjudication. The Arbitrator clearly had no jurisdiction to continue with the proceedings under any circumstances.
11. Even otherwise, while setting aside the award, the Additional District Judge, Moga granted liberty to the Director, to receive back the record of the Arbitration proceedings and to seek any other remedy, as permissible under law. The Director was, therefore, at liberty to recall the record of the Arbitration proceedings from the Court of Additional District Judge, Moga and proceed with the matter, in accordance with law.
12. In view of the discussion made above, I hold that the dispute regarding economic cost and award of interest is covered by Clauses 5(iii) and 6 (iii) of the agreement, itself, and it was to be decided by the Director, himself, and there was no need to refer the same to the Arbitrator. Thus, all the 16 connected appeals are accordingly dismissed with liberty as already granted by the Additional District Judge, Moga, vide order dated 22.02.2007, to proceed with the matter, in accordance with law.