Food Corporation Of India, ... vs M/S Guru Arjan Dev Rice Mills ...
2015 Latest Caselaw 853 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI
+       O.M.P. No.1651/2014
        FOOD CORPORATION OF INDIA, AMRITSAR    ..... Petitioner
                    Through: Mr. Mohan Lal Sharma & Mr. K.
                              Mathur, Advs.
                                Versus
        M/S GURU ARJAN DEV RICE MILLS,
        AMRITSAR & ORS.                                    ...... Respondents
                     Through: None.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
                         ORDER

% 30.01.2015

1. This petition, under Section 34 of the Arbitration and Conciliation

Act, 1996, seeks setting aside of the arbitral award dated 6 th August, 2014 of

the sole Arbitrator (who as per the Arbitration Agreement between the

parties providing for the arbitration of the Indian Council of Arbitration

(ICA), New Delhi was to be appointed / nominated by the Senior Regional

Manager / Zonal Manager of the petitioner out of the persons on the panel of

arbitrators maintained by ICA) allowing the claim of the petitioner in the

sum of Rs.45,68,756/- against the respondents to the extent of Rs.2,04,724/-

only.

2. This petition came up before this Court first on 22nd December, 2014

when the counsel for the petitioner was heard on the aspect of admission /

entertaining this petition and order reserved. Finding, that the arbitral award

was "published" on 6th August, 2014 and that the present petition had been

filed for the first time only on 19th November, 2014 i.e. after 90 days of the

„publication of the award‟ and that this petition is not accompanied with any

application under the proviso to Section 34(3) of the Arbitration Act, it was

also enquired from the counsel for the petitioner as to how the petition was

within time. Though the petitioner in the petition has pleaded that the

arbitral award was received by it on 22nd August, 2014 and wherefrom the

filing is within the prescribed time but the petitioner along with the petition

had not filed any document to show the award having been received on 22 nd

August, 2014. The counsel for the petitioner was thus also given an

opportunity to on or before 9th January, 2015 file documents to show that the

arbitral award was received by the petitioner on 22nd August, 2014. The

petitioner however has not filed any documents in this regard. The inference

is that the date of 22nd August, 2014 of receipt of the award is a figment of

the imagination of the petitioner and the petition when filed on 19th

November, 2014 was barred by time.

3. However, though at the time of hearing no ground on merits for

entertaining this petition appeared to have been made out but on further

consideration and for the reasons given below, I am of the view that a case

for issuance of notice of this petition to the respondents is made out. In this

circumstance, it is not deemed appropriate to render any final opinion on the

aspect of presentation of this petition within time also and it is considered

appropriate to leave the same also to be adjudicated at the after notice stage;

more so since the petition, though not filed within three months, has been

filed within further period of thirty days therefrom.

4. The arbitral award emanates from the claims of the petitioner against

the respondent with respect to the agreement dated 10 th October, 1994

whereunder the respondent No.1 M/s Guru Arjan Dev Rice Mills, a

partnership of respondents No.2 to 4 viz. Sh. Parambir Singh, Sh. Harpreet

Singh and Sh. Harcharan Singh, had agreed to store and mill paddy into rice

for the petitioner. The petitioner filed a statement of claim before the

arbitral Tribunal, claiming a sum of Rs.45,68,756/- from the respondents

along with interest at 18% per annum from 1st June, 1995 pleading that the

respondents had committed breach of contract by not milling the entire

quantity of paddy stored by the petitioner with the respondents, compelling

the petitioner to sell / dispose of un-milled paddy to mitigate its loss and the

petitioner in accordance with the contract was entitled to one and a half

times the economic cost of equivalent paddy / rice and which amounted to

Rs.45,68,756/- aforesaid.

5. The arbitral Tribunal in the award which is sought to be set aside in

this petition has found/observed:

(i) that though the arbitral Tribunal was constituted on 5 th August,

2003 but the arbitration proceedings remained suspended owing

to "litigations pending in the Hon‟ble High Courts and the

Hon‟ble Supreme Court of India" and were revived only vide

order dated 9th November, 2009 in I.A. No.175/1999 of the

High Court of Delhi;

(ii) that the respondents No.1&2 had failed to appear despite

service by publication in the newspaper and had been

proceeded against ex parte;

(iii) that it was inter alia the plea of the respondents No.3&4 i.e.

Parambir Singh and Harpreet Singh that the respondent No.2

Harcharan Singh was the working partner of the respondent

No.1 firm and it was the respondent No.2 only who had signed

the agreement on behalf of the respondent No.1; that the

respondent No.1 firm stood dissolved on the death of

respondent No.2;

(iv) that it was the case of the respondents No.3&4 that the paddy

and rice were in the joint custody of the petitioner and the

respondents and the petitioner had lodged FIR No.115/1996

under Sections 406/408/420 of IPC with respect to the shortfall

in paddy and the respondents No.3&4 had been acquitted in the

said case vide judgment dated 29th September, 2007 of the

Court of Judicial Magistrate, First Class, Tarantaran and in

which judgment it was inter alia held that in the agreement

between the petitioner and the respondent No.1, there was a

stipulation to the effect that the paddy shall remain under the

joint custody of the petitioner and the respondents and the

petitioner had been unable to disprove the same; that though

the petitioner had preferred an appeal against the judgment of

acquittal of the respondents but the said appeal was also

dismissed by the Court of the Additional Sessions Judge,

Tarantaran inter alia on the ground that no action had been

taken by the petitioner against its staff responsible for joint

custody and that no physical verification had been carried out

by the petitioner and that the petitioner could not prove that

there was any misappropriation.

6. The Arbitral Tribunal framed the following issues in the arbitration

proceedings:

               "1.     Whether the statement of claim has been             OPC
                       signed by legally authorized person?
               2.      Whether the claim is barred by limitation?          OPD
               3.      Whether the Respondent No.3&4 are liable to         OPC
                       pay the claim amount, if any to the claimant?
               4.      To what amount the claimant is entitled to          OPC
                       recover from the respondent, if any, and from
                       whom?
               5.      Whether the claimant is entitled to recover any     OPC
                       interest from the respondent, if so, on what
                       amount and at what rate?
               6.      Relief."

and recorded that the petitioner had examined only one witness in

support of its case and the respondents No.3&4 had examined themselves in

support of their defence and both parties had cross-examined witnesses of

each other;

7. The Arbitral Tribunal decided Issues No.1 to 3 in favour of the

petitioner and against the respondents.

8. The Arbitral Tribunal held:

A. that the defence of the respondents No.3&4 that owing to their

being non-active / sleeping partners and non-signatory to the

agreement of the respondent No.1 with the petitioner, they were

not liable, was not sustainable;

B. that the respondent No.2 was alive till the raising of the dispute

and filing of the statement of claim and the respondents

No.3&4 could not avoid liability if any by pleading dissolution

of the firm;

C. that similarly the defence of the respondents No.3&4 that they

were not liable owing to the judgment of their acquittal in the

prosecution aforesaid had no merit as a judgment passed under

the criminal law was not applicable to civil proceedings;

       D.      Qua Issue No.4, it was held:


               (i)    that the respondents No.3&4 had not denied the receipt

of the quantity of paddy claimed by the petitioner;

(ii) that it was thus the obligation of the respondents to prove

the return of rice corresponding to receipt of paddy;

(iii) that the respondents had however not proved as to how

much rice had been returned in lieu of paddy;

(iv) that the petitioner had however not supported its balance

sheet with cogent documentary proof;

(v) that however the balance sheet of the petitioner could not

be brushed aside, being the „public exchequer‟;

(vi) that as per the register produced by the respondents

No.3&4, there was a debit balance of Rs.16,22,783/- as

due and payable as on 31st March, 1997;

(vii) that accordingly the said amount could be taken as

payment due and payable by the respondents jointly and

severally to the petitioner;

(viii) however a perusal of the balance sheet filed by the

petitioner revealed that the petitioner had to pay a sum of

Rs.6,21,469/-, Rs.1,12,245/- and a sum of Rs.6,30,355/-

on account of milling charges of paddy;

(ix) that giving adjustment of the said total sum of

Rs.14,18,059/- from the amount of Rs.16,22,783/-, the

petitioner was entitled to recover the sum of

Rs.2,04,724/- only from the respondents jointly and

severally.

E. that the petitioner was also entitled to simple interest at 10%

per annum on the said amount from 1st April, 1997 till the date

of recovery.

9. Accordingly, the award in favour of the petitioner for recovery of

Rs.2,04,724/- with interest at 10% per annum from 1st April, 1997 till date of

payment for a period of three months and with interest at 12% per annum

from the said three months till the date of recovery was awarded.

10. Though the petitioner in the petition has challenged the arbitral award

by pleading the same to be contrary to substantive law applicable to the

substance of the dispute and which, in my opinion is not a ground for setting

aside of the award within the meaning of Section 34(2) of the Arbitration

Act, as held by me recently in National Highways Authority of India Vs.

Oriental Structural Engineers Pvt. Ltd. MANU/DE/0080/2015 and not

taken such a ground but from the aforesaid narrative, I find that in the

present case, a ground within the meaning of Section 34(2)(a)(iv) and (v)

and Section 34 (2)(b)(ii) of the Arbitration Act is prima facie made out.

11. The claim of the petitioner against the respondents was for

compensation in terms of the agreement i.e. equal to one and half times of

the equivalent un-milled paddy. The arbitral Tribunal, inspite of holding

that the respondents had admitted the receipt of the quantity of paddy which

the petitioner claims to have delivered and not discharged the onus of

showing return of equivalent rice, has instead of adjudicating whether the

petitioner in accordance with the contract is entitled to compensation for

such un-milled quantity of paddy and which was the dispute submitted for

arbitration, has gone on to decide the entitlement of the respondents to the

milling charges and on which aspect prima facie there were no pleadings,

Issues or arguments. The arbitral award is thus found to have prima facie

dealt with a dispute not contemplated by and not falling within the terms of

submission to the arbitration and contains a decision on matters beyond the

scope of submission to arbitration.

12. The arbitral award also does not give any reason for not awarding to

the petitioner the compensation for unmilled paddy in accordance with the

formula therefor agreed between the parties and on which basis the

petitioner had claimed. Section 31(3) of the Arbitration Act requires the

arbitral award to state the reasons upon which it is based. There is nothing

to show that the parties had agreed that no reason be given. In my prima

facie opinion, the requirement to give reasons on which the award is based

includes a requirement to give reasons for rejecting the basis on which the

claim is premised. I am further of the prima facie opinion that failure to

give such reasons would amount to "arbitral procedure" being "not in

accordance with the agreement of the parties" or being "not in accordance

with" Part I of the Arbitration Act within the meaning of Section

34(2)(a)(v).

13. I am also of the prima facie opinion that the Court will rarely be in a

position to give a conclusive finding of the award being induced by fraud or

corruption. The reason therefor is that without hearing the Arbitral Tribunal,

and which is not a party to a proceeding under Section 34, no conclusive

findings of award being induced by corruption can be given. However

where, from a reading of the arbitral record an attempt to favour one of the

parties is apparent, the Court would be entitled to invoke Section 34(2)(b)(ii)

for setting aside of the award. In the present case, from the Arbitral

Tribunal even from the amount which was due according to the respondents

themselves to the petitioner, deducting amounts for which the respondents

had not made any claim or pleaded set off, such an attempt is prima facie

evident.

14. Resultantly, issue notice to the respondents by all modes including

dasti, returnable on 25th March, 2015. The arbitral records be also

requisitioned for the said date.

15. It is however made clear that issuance of this notice would not amount

to stay of the arbitral award to the extent it allows the claims of the

petitioner and the petitioner would remain entitled to, without prejudice to

the pendency of this petition, recover the amount awarded to it and qua

which the counsel for the petitioner on enquiry stated that no objections

have been filed by the respondents.

RAJIV SAHAI ENDLAW, J.

JANUARY 30, 2015 „gsr‟..