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M/S Araya Rice Mill vs State of U.P. And 5 Others on 2 August, 2023

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Facts
1. The petitioner described itself as a firm engaged in the business of hulling paddy to
convert it into rice. Regarding the dues related to the CMR deficit for the year 2018-
19, recovery certificates were issued against the petitioner. Certain representations
were moved, and the petitioner preferred a writ petition. Liberty was granted to the
petitioner to avail the remedy of arbitration by approaching the Arbitrator 1 .
2. The Respondent No.2 arbitrator rejected the representation/claim of the petitioner.
Consequent to the aforesaid order, certain recoveries were issued against the
petitioner, and subsequently, due to an arbitration clause, the matter was referred to an
arbitrator.
3. The arbitrator did not favour the claims made by the petitioner and ultimately
proceeded to pass an award against the petitioner 2 .
4. The said award was challenged by an application under S.34 before the commercial
court, Lucknow, and an interim application was also filed.
5. On the said application, notices were directed to be issued on 30.01.2025, and it was
stated that the question of stay shall be considered after all the parties have put in
appearance 3 .


Issues:
1. Jurisdiction of the arbitrator: The petitioner argued that objections regarding the
arbitrator's jurisdiction were valid due to perceived bias.
2. Waiver of Objection: The court examined whether the petitioner waived its right to
challenge jurisdiction by failing to raise objections at the earliest opportunity 4 .

Petitioner’s argument:
1. It is argued by the counsel for the petitioner that in the meanwhile, the property of the
petitioner's Mill was attached and the production of the Mill has come to an end
because of coercive measures adopted by the respondents and although the dues can
be recovered as arrears of land revenue, however, in terms of the provisions contained
in S.170 of the U.P. Revenue Code, there is no provision for stopping the functioning
of the Mill as a mode of recovery. He further argues that suitable directions be issued
for the hearing of the injunction application 5 .
2. The petitioner argued that the Executive Director of the U.P. State Employees’
Welfare Corporation, who had issued recovery certificates against them earlier, should
not have been appointed as the arbitrator due to potential bias.
3. The petitioner contended that the arbitrator's rejection of their claims was unjust and
led to the issuance of recovery certificates and restraining orders preventing them
from hulling Custom Milled Rice (CMR) for 2024-25.
4. The petitioner raised concerns about the jurisdiction of the arbitral tribunal, claiming
that it lacked authority to adjudicate the dispute due to the arbitrator's prior
involvement in issuing recovery certificates.
5. The petitioner attempted to demonstrate that appointing an individual with direct
involvement in their case as an arbitrator caused prejudice, impacting the fairness of
the arbitration process.

Respondent’s Argument:
1. The counsel for the respondents stated that as the petitioner has himself moved an
application proposing to deposit some amount, this court itself may decide the stay
application without reverting the matter to the Commercial Court 6 .
2. Learned counsel for the State, referring to S.21 of the Code of Civil Procedure,
1908, has submitted that the objection to the jurisdiction or objection to a person
being an Arbitrator ought to have been raised at the very first instance. He has also
submitted that the objection also sought to have been made to the effect that the
petitioner had been prejudiced because the Arbitrator, i.e., the Executive Director, was
appointed as an Arbitrator and that the petitioner actively participated in the
arbitration process without raising any objections regarding the Arbitrator's
appointment or alleged bias. This participation without objection was cited as a basis
for dismissing any later claims of unfairness or conflict of interest 7 .
3. The respondent argued that the petitioner failed to demonstrate any specific prejudice
resulting from the Executive Director’s dual role as both an issuer of recovery orders
and an Arbitrator. The court noted that without evidence of actual harm or bias, the
petitioner's claims lacked merit.

Held:
1. The Allahabad High Court held that the manner in which the functioning of the Mill
stopped was neither sanctioned under S.70 of the U.P. Revenue Code nor could be
resorted to for execution of an award under the Arbitration Act and also considering
the concession of the counsel for the respondents, the petition was disposed off with
direction of the Commercial Court to decide the S.34 application under law.
2. Recovery in pursuance of the impugned award shall remain stayed, subject to the
petitioner depositing 50% of the amount within one week of the date of the order; the
said deposit shall be subject to the outcome of the proceedings pending before the
Commercial Court 8 .

3. Thus, the Court ruled that failing to raise jurisdictional objections during arbitration
proceedings constitutes a waiver, and since the petitioner participated without
objection, the challenge was deemed invalid, leading to the dismissal of the writ
petition on 17.01.2025 9 .

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Detail Information

Title

M/S Araya Rice Mill vs State of U.P. And 5 Others on 2 August, 2023

Court

: ALLAHABAD HIGH COURT., 2024

Lenght/Sections/Order/Rules

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Language

English

Case Number/Citation

2023: AHC:153836-DB

Matter(s)

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Councels

Counsel for Petitioner (M/S Arya Mill): Sadhana Dubey, Shashi Kant Shukla Counsel for Respondent (State of U.P): C.S.C., Mahendra Pratap Singh

Statement of Responsibility

Deepakshi Yadav, D.E.S. Shri. Navalmal Firodia Law College, Pune, Maharshtra

See Also

File Attachment

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