STATE OF HIMACHAL PRADESH v. KANGRA WHOLE SALE CORPORATION SOCIETY
2002-06-28
R.L.KHURANA
body2002
DigiLaw.ai
JUDGMENT R.L. Khurana, J.—The defendant-society was appointed as the sole distributor by the plaintiff-State of H.P. for the distribution of fertilizer including such mixtures and manures as the plaintiff might decide to distribute in various Districts of the State. For such purpose, six agreements were arrived at between the parties pertaining to different periods as follows: Sr. No. Date of agreement Period 1. Agreement dated 4.1.1967 1.11.1966 to 31.10.1967 2. Agreement dated 14.12.1967 1.11.1967 to 31.10.1968 3. Agreement dated 10.1.1969 1.11.1968 to 30.4.1969 4. Agreement dated 23.8.1969 1.5.1969 to 31.10.1969 5. Agreement dated 4.9.1970 1.11.1969 to 30.4.1970 6. Agreement dated 6.2.1970 1.5.1970 to 31.10.1970 2. All the abovesaid agreements contained an arbitration clause, being clause No. 21. Such clause reads: "All the disputes and differences arising out or in any manner touching or concerning this agreement whatsoever, shall be referred to the sole arbitration of the Secretary (Agriculture and Co-operation) to Himachal Pradesh Government as such at the time of reference and his award shall be conclusive and binding on the parties to this agreement." 3. It appears that disputes arose between the parties in respect of all the six agreements with regard to the outstanding amounts of the price of fertilizers supplied by the plaintiff State to the defendant-Society from time to time. On such disputes having arisen between the parties, the same came to be referred to arbitration of Shri B.C. Negi, the then Secretary (Agriculture and Co-operation) to the Government of Himachal Pradesh in terms of clause 21 of the agreements referred to above. Six separate references in respect of the six agreements were made, which came to be registered as arbitration case No. I to VI on the files of the arbitrator. The Arbitrator entered upon the references on 21.3.1984. Separate claims were preferred ^y the parties in respect of the six references. Though there was no specific order of the Arbitrator consolidating the six references for the purpose of determination of disputes involved therein, the Arbitrator carried out the proceedings in all the six references jointly as if there was only one reference. 4.
Separate claims were preferred ^y the parties in respect of the six references. Though there was no specific order of the Arbitrator consolidating the six references for the purpose of determination of disputes involved therein, the Arbitrator carried out the proceedings in all the six references jointly as if there was only one reference. 4. The arbitration proceedings which were initially entered upon by Shri B.C. Negi were continued by S/Shri S.M. Kanwar, Mohinder Lai and P.I. Suvrathan one after another in their capacity of being Secretary (Agriculture) to the Government of Himachal Pradesh from time to time consequent upon transfer of the earlier incumbent of the post of Secretary (Agriculture). The award dated 2.1.1992 came to be made ultimately by Shri P.I. Suvrathan, the then Secretary (Agriculture) to the Government of Himachal Pradesh. Such award was filed in this Court by the Arbitrator for being made the rule of the Court. Vide such award a sum of Rs. 90,76,082.78 Paise was found payable by the defendant-Society to the plaintiff-State. The Arbitrator, therefore, awarded as under in favour of the plaintiff-State:— "A total amount of Rs. 90,76,082.78 is thus due from the Society to the Department as principal. According to the term of the agreement 10% is leviable on this amount bringing the interest amount to Rs. 1,47,44,577.28. However, since the transactions relate to a period of 25 years from now and a number of attempts have been made by both the parties to reconcile their accounts, I believe it is of urgent importance now to settle this issue once and for all. Since no fool proof accounting procedure was adopted by the Society during the relevant period, it was not in a position to submit accurate and detailed accounts to the Department periodically. This has given rise to the present controversy. Keeping in view the need to minimize financial burden on the Co-operative Society and also safeguard at the same time the legitimate income of the Department, I am of the view that some incentive should be provided to the Society to make payment to the Department during a reasonable period. The Society is accordingly given a period of one year to make payments of the principal amount at the rate of 5% interest.
The Society is accordingly given a period of one year to make payments of the principal amount at the rate of 5% interest. For the amount which remains outstanding after one year the Society will have to pay full 10% interest to the Department as per terms of the agreement.” 5. Notices of the award having been filed in Court for being made the rule of the Court were issued to the parties. While no objections were preferred to the award by the plaintiff-state, the defendant Society preferred objections under Section 30/33, Arbitration Act, 1940 to the award. It was, inter alia, averred that the arbitration proceedings had been conducted by the person(s) having no jurisdiction in the matter; the arbitrator had misconducted himself and the proceedings; reference to the arbitration was barred by time; the agreements on the basis of which the references were made to arbitration were not legally and validly executed; the award was vitiated since time for making the award was never extended and that the award was bad inasmuch as the arbitrator had awarded interest which was not payable. 6. The plaintiff-State, while supporting the award denied the averments made by the defendant-Society. It was pleaded that the award was valid and legal having been made in accordance with law by the persons competent to act as arbitrator(s). An objection was raised that the defendant-Society was estopped from questioning the legality and validity of the award. 7. On the pleadings of the parties, following issues were framed by this Court on 15.7.1993:— 1. Whether the proceedings, which resulted in the making of the award were conducted by a person having no jurisdiction, as alleged? OP Objector. 2. Whether the arbitrators misconducted themselves and the proceedings, as alleged? If so, its effect? OP Objector. 3. Whether the reference made was beyond the period of limitation, as alleged? If so, its effect? OP Objector. 4. Whether the agreements, on the basis of which reference was made had not been validly or legally executed, as alleged? OP Objector. 5. Whether the award is vitiated due to the fact that there was no extension of time in making the award, as alleged? OP Objector. 6. Whether the award of interest is bad in law, as alleged in para 13 of the Objections? If so, its effect? OP Objectors. 7.
OP Objector. 5. Whether the award is vitiated due to the fact that there was no extension of time in making the award, as alleged? OP Objector. 6. Whether the award of interest is bad in law, as alleged in para 13 of the Objections? If so, its effect? OP Objectors. 7. Whether the objectors are estopped from questioning the legality and validity of the award, as alleged? OP non-objector. 8. Relief. 8. I have heard the learned Counsel for the parties and have also gone through the record of this Court. My findings on the above issues are as under:— Issue No. 1. 9. This issue stands decided in favour of the plaintiff-State by a Division Bench of this Court on 10.4.2001 in O.S.A. No. 19 of 1997. Issue No. 2. 10. Admittedly, six separate references were made to the arbitrator for determination of the dispute(s) arising out of six separate agreements. Such references came to be registered as arbitration case Nos. I to VI on the files of the arbitrator. Separate claims were preferred by the parties in such six cases. As many as 29 issues were framed by the arbitrator separately in all of the six cases as under:— 1. Whether the claim of the petitioner suffers from delay and laches, if so its effect. OPR 2. Whether this Court (Arbitrator) has no jurisdiction to try the matter. OPR 3. Whether the claim of the petitioner suffers for want of particulars. OPR 4. Whether the claim of the petitioner does not fall within the definition of dispute under agreement. OPR 5. Whether the claim and particulars of accounts, mentioned in the claim are not in accordance with the agreement. OPR 6. Whether the petitioner has failed to declare any accounting procedure, if so its effect. OPR 7. Whether the petitioner has claimed the cost of the unsold fertilizers which was lying in the depots of petitioners licensees, if so, how much. OPR 8. Whether the agreement was executed after the due date; if so, its effect. OPR 9. Whether the petitioner has failed to declare the breakup of distribution margin in-time, if so its effect. OPR and OPP 9(a) Whether the agreement being not signed on behalf of the petitioner is not binding upon the respondent. OPR 10. Whether there was any valid agreement between the parties. OPR. 11.
OPR 9. Whether the petitioner has failed to declare the breakup of distribution margin in-time, if so its effect. OPR and OPP 9(a) Whether the agreement being not signed on behalf of the petitioner is not binding upon the respondent. OPR 10. Whether there was any valid agreement between the parties. OPR. 11. Whether the petitioner has violated the agreement; if so its effect. OPR 12. Whether the respondent has delayed the remittance of cash sale as well as submission of accounts from time to time. OPR 13. Whether the petitioner is entitled to the cost of fertilizers sold on taccavi loan. OPR 14. Whether the petitioner issued licences to the parties other than the respondent to sell and store the fertilizer, if so its effect. OPR 15. Whether the petitioner used to supply the fertilizer on consignment basis, if so its effect. OPR 16. Whether the petitioner has no right to claim the interest according to clause 13 of the agreements. OPR 17. Whether the petitioner is entitled to claim any interest without declaring the distribution margin. Cost of unsold fertilizers sold on taccavi loan, cost of fertilizers taken back or transferred by the petitioner. OPR 18. Whether the petitioner has no right to get the benefit of Clauses 5(B), 6(B) and Clause 13 of the agreement. OPR 19. Whether the respondent has deposited the price of the fertilizer sold on cash. OPR 20. Whether the petitioner has supplied fertilizers direct to the licensees other than the respondent, if so its effect. OPR 21. Whether the amount remitted by the respondent from time to time has already been accounted for in the claim by the petitioner. OPP 22. Whether there is difference between the supplies made by the petitioner and received by the respondent. OPR 23. Whether there is any difference in Annexure PK and the claim petition of the petitioner, if so its effect. OPR 24. Whether the petitioner has failed to reconcile the accounts with the respondent. OPR 25. Whether the petitioner has failed to lift the fertilizer after the expiry of agreement, if so its effect. OPR 26. Whether the respondent has not handed over the left over stocks of different minds of fertilizers after the expiry of the agreement as per condition 19 of agreements deed. OPP 27. Whether the German Mixture was supplied by the petitioner to the respondent. OPP 28.
OPR 26. Whether the respondent has not handed over the left over stocks of different minds of fertilizers after the expiry of the agreement as per condition 19 of agreements deed. OPP 27. Whether the German Mixture was supplied by the petitioner to the respondent. OPP 28. Whether the petitioner is entitled to the claim, if so, how much. OPP 29. Relief. 11. As stated above, separate proceedings were not conducted in the six cases. Without there being an order of consolidation of the cases (assuming the arbitrator had the power to consolidate the cases) such proceedings were carried out and a composite award for a sum of Rs. 90,76,082.78 paise along with interest in respect of the claims involved in six separate cases was made in favour of the plaintiff-State without even specifying the amount(s) awarded in each of the six cases. 12. Besides, though as many as 29 issues, referred to above, were framed in each of the six cases, the arbitrator has not recorded any findings on such issues and without even discussing the issues he proceeded to make the award. 13. Under Section 34, Arbitration Act, 1940, an award may be set aside where the Umpire or an Arbitrator has misconducted himself or the proceedings. The word "misconduct" has not been defined in the Act, but it does not necessarily mean anything in the nature of fraud. Tt may include cases of fraud by the arbitrators but it implies much more than that. The arbitrator holds a quasi judicial position and he has to perform onerous duties including those of deciding complicated and disputed questions of law and facts between the parties. In interpreting the word "misconduct" in a wider sense it includes legal misconduct which means some palpably erroneous though honest decision and especially when it causes a miscarriage of justice. It includes neglect of duties and responsibilities. The Courts expect of him that he should act honestly It is also expected of him that he should enquire into the points raised before him by the parties. Failure to do so may amount to misconduct on the facts and in the circumstances of the case. Misconduct is a question of fact to be decided in each case and has to be determined from the facts and circumstances of the case. 14.
Failure to do so may amount to misconduct on the facts and in the circumstances of the case. Misconduct is a question of fact to be decided in each case and has to be determined from the facts and circumstances of the case. 14. In the proceedings of arbitration there must be adherence of justice, equity, law and fair play in action. The proceedings must adhere to principles of natural justice and must be in consonance with such practice and procedure which will lead to proper resolution of the dispute and create confidence of the people for whose benefit these processes are resorted to. It is, therefore, the function of the courts of law to oversee that the arbitrators act within the norms of justice. Once they do so and the award is clear, just and fair, the courts should, as far as possible, give effect to the award and compel the parties to adhere to it and obey the decision of their chosen adjudicator. [See : Food Corporation of India v. Joginderpal Mohinderpal and another, AIR 1989 SC 1263]. 15. It is the bounden duty of an arbitrator to give a decision on the vital issues referred to him and on his failure to do so, the award cannot be sustained. 16. In Ganga Ram and others v. Risal Singh, AIR 1974 P & H 36, the dispute referred to the arbitrator for adjudication was whether the plaintiff was a money-lender and was not entitled to interest. The arbitrator decided only the matter relating to interest as per the Accounts Act, leaving the other issue undertermined. It was held that the same amounted to misconduct because omission to decide both the matters which were interlinked materially affected the result of the case. 17. Section 37, Arbitration Act, 1940, makes the provisions contained in Limitation Act, applicable to arbitrations as they apply to the proceedings in Court. One of the questions raised before the arbitrator, qua which an issue was also framed, was with regard to the claim(s) being time barred. No findings on such vital question have been recorded by the learned arbitrator. 18.
One of the questions raised before the arbitrator, qua which an issue was also framed, was with regard to the claim(s) being time barred. No findings on such vital question have been recorded by the learned arbitrator. 18. Though every rule of procedure laid down in the Code of Civil Procedure for trial of suits does not apply to arbitration proceedings and an arbitrator is not bound by the technical rules of procedure, which the courts are required to follow, an arbitrator in his function which is quasi judicial must act in a judicial manner by following the rules of procedure and established canons of justice. Any departure therefrom would vitiate the award. Once the arbitrator has adopted a particular procedure, he cannot depart therefrom. Therefore, in the present case, once the arbitrator had framed/formulated the issues/questions for determination as raised before him by the parties, he is required to record his findings thereon. Failure to do so would amount to misconduct of the proceedings resulting into vitiation of the award. 19. As stated above., though six separate references arising out of mx separate agreements were made to the arbitrator, one award has been made by the arbitrator and that too without specifying the amounts awarded in each of such separate references. It has been held in I.G.H. Ariff and others v. Bengal Silk Mills Ltd. and another, AIR 1949 Calcutta 350, and in Prabartak Commercial Corporation v. Ramsahaimull More Ltd., AIR 1963 Calcutta 137, that each of the separate dispute arising out of separate contracts between the parties must be decided in separate references by the arbitrator appointed for determining the disputes. Where there are separate references in respect of separate arbitration agreements, it is irregular for the arbitrator to make one single consolidated award. 20. The above ratio applies to the facts of the present case on all fours. Following the said ratio, with which I am in full agreement, it is held that one single award in respect of six separate references arising out of six separate agreements is bad and the arbitrator has, as such, misconducted the proceedings. The issue is decided in favour of the defendant-Society Issues No. 3 to 7. 21.
Following the said ratio, with which I am in full agreement, it is held that one single award in respect of six separate references arising out of six separate agreements is bad and the arbitrator has, as such, misconducted the proceedings. The issue is decided in favour of the defendant-Society Issues No. 3 to 7. 21. In view of the findings recorded under issue No. 2 above that the arbitrator has misconducted the proceedings and the award stood vitiated and liable to be set aside, these issues need not be gone into. The questions involved therein are left open and may be agitated by the parties before the appropriate forum at the appropriate stage. Relief. 22. As a result, the objection petition being OMP No. 636 of 1992 is allowed. The award dated 2.1.1992 of the learned arbitrator is set aside and the suit stands disposed of accordingly. Award set aside. -