IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH Date of Decision:27.01.2026 Punjab State Civil Supplies Corporation Limited .......Appellant Versus M/S Amit Rice Mills and others ......Respondents CORAM: HON'BLE MR. JUSTICE JASGURPREET SINGH PURI Present:- Mr. Deepak Sabherwal, Advocate for the appellant.

Mr. Akhil Kashyap, Advocate for respondents No.1 and 2.

*****

JASGURPREET SINGH PURI J.(Oral)

1. The present appeal is the first appeal assailing the judgment dated 28.09.2013 passed by learned District Judge, Moga, whereby the objections filed by the respondents herein against the present appellant were allowed and the arbitral award dated 11.03.2010 passed by learned Arbitrator was ordered to be set aside.

2. While giving the brief facts of the present case, learned counsel for the appellant submitted that there was an agreement between the appellant and the respondents.The appellant is a procurement agency which after purchasing the paddy from the market, is required to deliver the same to respondent-Rice Sheller for the purpose of shelling of the paddy. As per the Government policy a fixed percentage of the rice so shelled was required to be returned back to the appellant which was then to be given to the Government. However, in the present case, when the respondents were entrusted with 69,736 bags of paddy, they failed to return the shelled rice to the appellant according to the terms of the agreement and the Government policy, which led to a dispute between the parties. He submitted that in pursuance of the arbitration clause contained in the agreement, namely Clause No. 22, it is provided that all disputes and difference 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 for in the contract) shall be referred to sole arbitration of the Managing Director, PUNSUP or any other person appointed by him in this behalf. He further submitted that in pursuance of the aforesaid clause, the matter was referred to the learned Arbitrator, who, after hearing the parties, passed an award on the claim made by the appellant–procurement agency. The said award was passed on 11.03.2010 and has been annexed with the present appeal. Vide the aforesaid award, the claim of the appellant–procurement agency was allowed against the respondents–rice sheller.

3. He submitted that the aforesaid award having been passed in favour of the appellant was assailed by the respondents by filing objections under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) before learned District Judge, Moga. Learned District Judge, Moga vide impugned judgment dated 28.09.2013, set aside the award on the ground that the matter was non-arbitrable in nature in view of the existence of an exclusion clause also termed as the “Exempted Category” clause as contained in Clause 9 of the aforesaid agreement. He further submitted that on this premise, the arbitral award was set aside on the ground that the subject matter of the dispute fell within the “Exempted Category” as per the aforesaid Clause 9 of the aforesaid agreement and the same is under challenge in the present appeal filed under Section 37 of the Act.

4. While making submissions, learned counsel for the appellant submitted that the subject matter did not fall in the exempted category because it is a case where the paddy was supplied to the respondents but they did not return the rice to the appellant and therefore it was not a case of lack of specification but it was a case where rice was short supplied by them. While referring to the aforesaid Clause 9, which provides that the decision is to be taken by the Managing Director, PUNSUP, he submitted that the aforesaid is applicable only when the penalty at the rate of 1.5 times of the economic cost plus 21% interest is to be imposed, only then it falls in the exempted category, otherwise it does not fall in the exempted catego