PUNJAB STATE CIVIL SUPPLIES CORPORATION LTD. & ANR. versus M/S. RAMESH KUMAR AND COMPANY & ORS. on 13 November 2021

1. Leave granted.

2. The appeal arises from a judgment of a Single Judge of theHigh Court of Punjab and Haryana dated 18 May 2016 in FAO 2637 of2013.

3. By an arbitral award dated 20 December 2005, the solearbitrator rejected the claims of the first and second respondents[1],amounting to Rs 4,88,437 and upheld the action of the appellants of 1 hereinafter referred to as the respondents

A

B

C

D

E

F

G

H

Aforfeiting the security deposit. The award of the arbitrator was challengedunder Section 34 of the Arbitration and Conciliation Act 1996[2] inArbitration Case No 17 of 2006 before the District Judge at Chandigarh.By a judgment dated 9 November 2012, the District Judge, finding nosubstance in the petition under Section 34 of the 1996 Act, rejected it.The judgment of the District Judge was challenged before the HighBCourt in FAO 2637 of 2013 under Section 37 of the 1996 Act. The HighCourt allowed the appeal, inter alia, on the ground that the award lackedreasons and the reasons which were assigned were arbitrary anderroneous. Having held that the award was liable to be set aside, theHigh Court decreed the claim of the respondents for the supply of 22,389Cwooden batons, together with the security deposit of Rs 1,00,000 andawarded interest at the rate of 12% from the date from which the amountbecame due.

4. While issuing notice on 24 March 2017, this Court stayed theoperation of the impugned judgment and order of the High Court.D5. The dispute between the parties arose from a contract whichwas entered into between the appellants and the respondents on 4 April2002 for the supply of 24,900 batons. Of the contracted supply, 22,389batons were accepted by the appellants while the rest were rejected.Pursuant to the contract, the respondents had deposited a sum of RsE1,00,000 towards security. The dispute between the parties was referredto arbitration in terms of clause 17 of the agreement by an order of theCivil Judge (Junior Division), Faridkot on 28 June 2005. The respondentsraised a claim in the amount of Rs 4,88,437 besides raising a grievancein regard to the forfeiture of the security deposit. In the written statementfiled by the appellants, the defence was that the supply effected by theFrespondents was sub-standard and not in accordance with thespecifications of the tender. After recording evidence, the sole arbitratorrejected the claim. After considering the evidence of the witness for theclaimant and for the appellants, the sole arbitrator arrived at the conclusionthat the material which had been supplied was defective and that theGforfeiture of the security deposit was valid.

6. In appeal, the High Court has set aside the judgment of theDistrict Judge on the basis of the following reasoning:

PUNJAB STATE CIVIL SUPPLIES CORPORATION LTD. v. M/S. RAMESHKUMAR AND COMPANY [DR DHANANJAYA Y CHANDRACHUD, J.]

“I have heard the learned counsel for the parties and appraisedthe paper book and of the view that the findings arrived at by theArbitrator for justifying the withholding of the payment for acceptedwooden battons and security is highly erroneous and not inconsonance with the provisions of the 1996 Act and thus, theAward suffers from the vice of the provisions of sub-section 3 ofSection 28 of the 1996 Act. Reasoning assigned for withholdingof the security is allegedly fortified as per the Clause 8 of theAgreement, whereas, Clause 8 says that only the charges oftransportation to be borne by the appellant-contractor, but not withregard to withholding of the security. The Arbitrator did not examinethe acceptance letter dated 04.04.2002 acknowledging the receiptof 22389 wooden battons which were confirming to thespecification of the Contract. The claim was only with regard tothe payment of the aforementioned battons and refìnd of thesecurity. The award lacks reasons, much less, not in consonancewith the provisions of the 1996 Act and the same is not sustainable.The. reasons assigned by the Arbitrator is not only fallacious andarbitrary, much less, erroneous. No reasons have been assignedto the acceptance letter dated 04.04.2002. This aspect wasrequired to be noticed by the Objecting Court, which is, in myview, committed fallacy in not appreciating the aforementionedfacts and law.”

7. The High Court not only set aside the judgment of the DistrictJudge rejecting the petition under Section 34 of the 1996 Act, but alsoawarded the claim of the respondents, together with interest.

8. Mr Himanshu Upadhyay, counsel appearing on behalf of theappellants, submits that the High Court, while exercising its jurisdictionunder Section 37 of the 1996 Act, arising from the rejection of an arbitrationpetition under Section 34, has transgressed the limits of the jurisdiction.Counsel submitted that:

(i) The arbitral award, contrary to the finding of the High Court,is not unreasoned, but contains elaborate reasons after anevaluation of the evidence which was adduced by the rivalparties;

(ii) The High Court could not have set aside the award merelyon the basis of the acceptance letter dated 4 April 2002.

AB

C

D

E

F

G

H

The award does contain a reference to the fact that as faras the supply of batons after the expiry of the period on 4April 2002 was concerned, a ‘deduction’ and is required tobe made in terms of the relevant clauses of the tenderdocument; and A

B(iii)The High Court was not exercising its jurisdiction as a firstappellate court in a civil suit and could not have awardedthe claim.

9. The respondents have been served. No appearance has beenentered on their behalf.

C

10. The Single Judge of the High Court was exercising jurisdictionunder Section 37 of the 1996 Act. The award of the sole arbitrator dated20 December 2005 contains an analysis of the evidence. Both therespondents as well as the appellants adduced evidence before the arbitraltribunal. It was on the basis of the evidence that the sole arbitrator upheldDthe defence of the appellants on the ground that right from the inceptionthe respondents had been mixing sub-standard material with goods inaccordance with the tender specifications. As a consequence of this,the loss and damage which has been caused to the appellants was dulyquantified and in this backdrop, the sole arbitrator held that therespondents were not entitled to the payment of the balance of theEprincipal or to recover the security deposit.

11. While considering a petition under Section 34 of the 1996 Act,it is well-settled that the court does not act as an appellate forum. Thegrounds on which interference with an arbitral award is contemplatedare structured by the provisions of Section 34. The District Judge hadFcorrectly come to the conclusion that there was no warrant forinterference with the arbitral award under Section 34. The High Courtseems to have proceeded as if it was exercising jurisdiction in a regularfirst appeal from a decree in a civil suit. The jurisdiction in a first appealarising out of a decree in a civil suit is distinct from the jurisdiction of theGHigh Court under Section 37 of the 1996 Act arising from the disposal ofa petition challenging an arbitral award under Section 34 of the 1996Act.

12. In the present case, the High Court was required to determineas to whether the District Judge had acted contrary to the provisions ofSection 34 of the 1996 Act in rejecting the challenge to the arbitral award.H

PUNJAB STATE CIVIL SUPPLIES CORPORATION LTD. v. M/S. RAMESHKUMAR AND COMPANY [DR DHANANJAYA Y CHANDRACHUD, J.]

Apart from its failure to do so, the High Court went one step furtherAwhile reversing the judgment of the District Judge in decreeing the claimin its entirety. This exercise was clearly impermissible. The arbitratorwas entitled to draw relevant findings of fact on the basis of the evidencewhich was adduced by the parties. This was exactly what was done inthe arbitral award. The award of the arbitrator was challengedBunsuccessfully by the respondents under Section 34 of the 1996 Act. Inthis backdrop, there was no basis in law for the High Court to interferewith the judgment of the District Judge and, as we have noted earlier, toeven go a step further by decreeing the claim.

A

13. For the above reasons, we find the judgment of the High Courtto be unsustainable. We accordingly allow the appeal and set aside theimpugned judgment of the Single Judge of the High Court of Punjab andHaryana dated 18 May 2016 in FAO 2637 of 2013. In consequence, theappeal filed by the respondents to challenge the rejection of the petitionunder Section 34 of the 1996 Act shall stand dismissed.

C

D

14. Pending application, if any, stands disposed of.

Nidhi Jain

Appeal allowed.

E

F

G

H