The Punjab & Haryana High Court has held that where there is specific exclusion clause, the matter should not be referred to Arbitrator.

The Court was considering an Arbitration Application under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitrator.

The single-bench of Justice Jagmohan Bansal observed, "From the perusal of para 36 and 76, it is evident that where there is specific exclusion clause, the matter should not be referred to Arbitrator. There is allegation of misappropriation of paddy belonging to the State. The allegation against the applicant is that he has committed an offence of breach of trust. It is not offence against an individual whereas alleged offence is against the State. Public money is involved, thus, there is need of adjudication by Courts instead of Arbitral Tribunal."

The Applicant was represented by Advocate Aalok Jagga while the Respondent was represented by Advocate Prateek Mahajan.

The Applicant, a rice miller, pursuant to Custom Milling Policy, in the year 2018 entered into an agreement with State as per which agencies supplied paddy to him and he in turn had to supply rice. There is an Arbitration Clause in the agreement that states that dispute between the parties would be referred to the Arbitrator as per 1996 Act. However, exclusion clause in the same agreement provides that cases of fraud, theft or misappropriation on the part of miller would not be covered under arbitration agreement.

Counsel for the Applicant submitted that in view of exclusion clause, in case of fraud, theft or misappropriation of paddy on the part of miller, the matter cannot be referred to Arbitrator. The allegations of misappropriation of paddy against the applicant are serious and the matter is pending framing of charges after completion of investigation.

Reliance was placed on Supreme Court's decision in Vidya Drolia and others v. Durga Trading Corporation, (2021) to submit that the Court while adjudicating application under Section 11(6) of 1996 Act cannot decide question of non-arbitrable disputes. It was contended that there was no allegation of fraud at the time of execution of agreement and only on the basis of allegation of misappropriation of paddy, at a later stage, the applicant cannot be deprived to invoke arbitration clause. He averred that Supreme Court has clearly elucidated a fourfold test for determining whether subject matter of a dispute in an arbitration agreement is not arbitrable and if the said test is applied to instant case, the dispute raised by applicant cannot be held as non-arbitrable.

The Court conluded that when specific exclusion clause existed, the matter could not have been referred to Arbitrator.

The Application was accordingly dismissed.

Cause Title: M/s Ganpati Rice & General Mills vs. Haryana State Cooperative Supply & Marketing Federation Limited and Another (2024: PHHC 164732)

Appearances:

Applicant- Advocate Aalok Jagga, Advocate Harmanjit Singh, Advocate Vivek Goyal, Advocate

Respondent- Assitant Advocate General Fafia Gupta, Advocate Prateek Mahajan, Advocate Mayank Vashishth

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Punjab & Haryana High CourtJustice Jagmohan Bansal

Sheetal Joon