In the instant case, the Respondent invoked the Arbitration Clause under the Dealership Agreement and approached the Director (Marketing) of the Appellant who appointed Mr. B.L. Parihar as the sole Arbitrator. The Arbitrator, Mr. B.L. Parihar, nominated by the Director (Marketing) of the Appellant had no authority and/or jurisdiction to adjudicate any dispute pertaining to the lease agreement.
34. The Arbitral Award is liable to be set aside in so far as the same deals with disputes with regard to the Lease Agreement which are not contemplated by the Arbitration Clause in the dealership agreement and/or in other words, do not fall within the terms of the submission to Arbitration. The Arbitral award is thus liable to be set aside under Section 34(2)(a)(iv) of the 1996 Act. The decision enhancing the lease rent is patently beyond the scope of the submission to arbitration. {Para 33}
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 837-838 OF 2022
Indian Oil Corporation Ltd. Vs M/s Shree Ganesh Petroleum Rajgurunagar
Author: Indira Banerjee, J.
Dated: FEBRUARY 01, 2022
Leave granted.
2. These appeals are filed by Indian Oil Corporation Limited against
a judgment and order dated 11th September 2015 passed by the High
Court of Judicature at Bombay partly allowing Arbitration Appeal No.19
of 2013 filed by the Respondent and dismissing Arbitration Appeal
No.39 of 2013 filed by the Appellant.
3. The facts giving rise to these appeals are stated very briefly
hereinafter.
4. The Appellant took a plot of land, hereinafter referred to as “the
said premises”, on lease from the Respondent for a term of 29 years,
pursuant to a deed of lease dated 20th September 2005 which was duly
registered, in order to set up a retail outlet for sale of its petroleum
products.
5. The recital of the deed of lease, inter alia, records:-
“1)…….The abovementioned Property is owned by SHRI.
LAXMAN DAGDU THITTE. The said leased Property is more
particularly described in the Schedule hereinbelow given
together with the Structures and Building now standing
thereon or that may be hereafter erected thereon by the
LESSEE TO BOLD the premises hereby demised I hereinafter
for the sake of brevity referred to as the ("DEMISED
PREMISES") unto the LESSEE for a term of 29 (TWENTY
NINE years, commencing from the 20th day of
SEPTEMEBR 2005 renewable and determinable as
hereinafter provided yielding and paying thereof during the
said term monthly and the proportionately for any part of a
month the rent of Rs. 1750 /- (RUPEES ONE THOUSAND SEVEN
HUNDRED AND FIFTY only) to be paid without any deduct on or
before the 15th day of each and every calendar month.”
6. The deed of lease, hereinafter referred to as “the lease
agreement” contained, inter alia, the following terms and conditions:-
“2) THE LESSEE DOTH HEREBY COVENANT WITH THE LESSOR/S AS
FOLLOWS:
i) Lease Rent will be Rs. 1750 /- (RUPEES ONE
THOUSAND SEVEN HUNDRED AND FIFTY Only) per
month.
3) Lease Period will be 29 years from 15/04/2005 with further
renewal by mutual consent.
…
4.) (e) To use or permit to be used the BUILDINGS AND
SRUCTURES to be constructed on the DEMISED PREMISES for any
and all lawful purposes as may be permitted by the Authorities
from time to time including for storing, selling or otherwise
carrying on business in Petrol, Diesel, Petroleum Products, oil and
kindred motor Accessories, Petrol Filling Service and Lubricating
Station etc.
…
(i) Subject to the LESSOR/S covenant hereinafter contained (and
the Rights of the LESSE/S interest in the said DEMISED PREMISES
as mentioned hereinafter), to deliver and yield up the DEMISED
PREMISES at the expiration or sooner determination of the said
term as herein provided together --- all the LESSOR/S fixtures and
fittings in such state and condition as the same were in, when the
possession was taken of by the LESSEE at the commencement of
the said Term ( fair wear and tear and loss and/ or damage/s by
fire, fluid, earthquake, tempest, lightning, violence of any army,
mob or irresistible fierce or accident expected). All additions,
alteration, installations, (fittings and fixtures which during the said
term or any renewal thereof belong to and revert to the LESSEE
who shall be entitled to take away the same provided the
DEMISED PREMISES are restored to their original state and
conditions and the LESSOR/S will not have any right, title and
interest thereon nor shall he/she/they be entitled to retain or
appropriate any part thereof.
…
3) (b) That on the LESSEE paying the rent hereby reserved and
observing and performing all the several Covenants, conditions
and Agreements hereinbefore contained and on its part to be
observed and performed the LESSEE shall peaceably hold and
enjoy the DEMISED PREMISES during the said and any renewal/s
thereof without any let or interruption by the LESSOR/S or by any
persons lawfully or equitably claiming through, under or in trust
for the LESSOR/S.
…
4)(a) ….. If the Rent hereby reserved or any part thereof shall be
in arrears for a period of one year after becoming payable and
after being demanded or if the LESSEE to be observed and
performed their and in that event it shall be lawful for the LESSOR
at any time thereafter to re-enter upon the said premises or any
part thereof in the name of the whole and to take action to
possess and enjoy as in all their former state and interest
Provided always and it is hereby agreed and declared that the
Power of Re-entry hereinabove contained shall not be exercised
unless and until the LESSOR/S shall have first given to the
LESSEES 90 days’ Notice in writing pointing out the Breach in
respect of which the right to Re-Entry is exercised and the LESSEE
shall have failed to remedy the breach within a reasonable period
of not less than 90 days thereafter. ….
…
(e) The LESSEE shall be entitled to ASSIGN, TRANSFER,
SUBLET, UNDERLET or part with the Possession of the
DEMISED PREMISES or any part thereof to any person
above name whomsoever it chooses without the consent
of the LESSOR.
(f) The LESSEE shall be entitled to appoint, remove, reappoint,
change and substitute any dealers, agents, licensees and other
authorized representatives on and in respect of the DEMISED
PREMISES without the consent OF THE LESSOR.
……
(n) PROVIDED ALWAYS AND IT IS AGREED AND DECLARED
that at the expiration of the said Term of 30 years this
LEASE will be renewed for a further term by mutual
consent. The renewed lease will be on the rents,
conveyance, conditions and Agreements to be mutually
agreed upon between the Parties.
…
5. Any dispute or difference of any nature whatsoever regarding
any Right, liability, act, omission on account of any of the parties
hereto arising out of or in rein-tion to these shall be referred to
the sole Arbitrator of the Managing Director of the LESSEE
and if the Managing Director is unable or unwilling to act
as a sole Arbitrator then the matter will be referred to the
sole Arbitrator of any other person designated or
nominated by such Managing Director in his place and state
writing to act as an Arbitrator and the LESSOR/S will not be
entitled to raise any objection to any such arbitration on the
ground that, the Arbitrator so appointed is an officer of the
LESSEE of that as such officer he had dealt with the matters to
which the disputes relates or had expressed his views thereon,
the Arbitrator to whom the matter originally referred being
transferred or vacating in his office being unable to act for any
reason such Managing Director as aforesaid at the time of such
transfer vacation of office or on his inability to act shall nominate
as designate another person to act as an Arbitrator pursuant to
this clause and such other person shall be entitled to proceed with
the reference from the point at which it was left by his
predecessor. It is expressly agreed that no person other
than the Managing Director of the LESSEE as aforesaid
shall act as an Arbitrator and if for any reason that is not
possible, the matter shall not be referred to Arbitration at
all. The Award of the Arbitrator so appointed as herein provided
shall be final, conclusive and binding on both the Parties and such
the Arbitration shall be held subject to and in accordance with the
Provisions of the ARBITRATION ACT 1940, and any Statutory
Modification ------enactment thereof.”
7. The Appellant set up an A site retail outlet at the said premises
making an investment of around Rs.50 lakhs. The Respondent was
appointed a dealer of the said retail outlet and a dealership agreement
dated 15th November 2006 was executed by and between the
Appellant and the Respondent.
8. The dealership agreement, inter alia, provided:-
“AND WHEREAS the Corporation carries on the business
of refining and sale of petroleum products and more
particularly of Motor Spirit (MS) and High Speed Diesel
Oil (HSD):
AND WHEREAS the Corporation is the
Owner/Lessee/Tenant/licensee of a Plot of land and is
the Owner/Lessee/Tenant/licensee of the
superstructures thereon more particularly described in
the First Schedule hereunder written and of the
structures thereon (Hereinafter collectively referred to
as "the Premises") and has installed and/or is about to
install at and under the said premises the apparatus
and equipment described in the Second Schedule
hereto (hereinafter called "the Outlet")
WHEREAS at the request of the Dealer, the Corporation
has agreed to appoint the Dealer as its Dealer for the
retail sale or supply at the said premises of certain
petroleum products on the terms and conditions
hereinafter contained.
….
2.This agreement shall remain in force for a
period of fifteen years from 15th day of Nov' 2006
and continue thereafter for successive periods of
one year each until determined by either party
by giving three months’ notice in writing to the
other of its intention to terminate this agreement and
upon the expiration of any such notice, this agreement
shall stand cancelled revoked, provided that nothing
contained in this clause and prejudice the rights of
either of the parties hereto to terminates this
agreement earlier in exercise of their rights under any
of the provisions contained in this agreement and/or
the rights of the Corporation to stop and/or suspend
and/or restrict the supplies to the Dealer and/or the
sales from the premises by the Dealer pursuant to the
provisions contained in that behalf in this Agreement.
…
5
Recitals
1st Schedule
2nd Schedule
Period
4. The Corporation reserves the right without
reference to or consent of the Dealer to appoint one or
more additional Dealer/s in the same town/area or
location and such additional Dealer/s shall be entitled
to make sales of the products without any objection
from the Dealer and the Dealer shall not be entitled to
make any claim for remuneration, commission or
allowance whatsoever in respect of the sales made by
such additional Dealer/s and/or sales made by the
Corporation through such additional Dealer/s.
…
7.(a) The Dealer undertakes that he and his servants
and agents will observe and perform the provisions of
the Petroleum Act, 1934 and the Explosives Act, 1884
and any statutory re-enactment or modification thereof
for the time being force and all rules and regulations
made thereunder and all other Government or
Municipal Local or similar Acts, Laws, Regulations and
bye-laws, as may be in force from time to time relating
to the Dealer's business in the said products and to the
storage, receipt and transportation and other related
matters as contemplated under this Agreement and all
requisitions and requirements of all authorities
appointed under the foregoing enactment, rules or
regulations. If there is any violation on the part of the
Dealer, his servants and agents of the aforesaid
provisions or statutory rules and regulations, the
Corporation will have the absolute right to discontinue
the supplies and take any other action including the
termination of this Agreement as the Corporation may
at its absolute discretion think fit.
(b) The Dealer shall also be solely responsible for any
breach or contravention by himself, his employees,
agents of any Acts, rules, regulation or bye-laws of the
central and/or State Government and/or Municipal Local
and/ or other authorities as may be applicable to the
business including without prejudice to the generality of
the foregoing, the concerned authorities respectively
appointed under the Petroleum Act, Payment of Wages
Act, Shops and Establishments Act, Factories Act and
the Workmen's compensation Act. The Explosives Act,
1884 or any other Act or Statutory Rules, Regulations or
Bye-Laws made thereunder and/ or applicable from
time to time to the business of storage and sale of
products and servants, workmen and persons engaged
in connection therewith and the corporation shall not be
Corporation’s
right to appoint
additional
Dealer/s
The Petroleum
Act
responsible in any manner for any liabilities arising out
of non-compliance by the Dealer with the same.
…
8(e) For the use of the said premises including the
construction thereon and outfit, the Dealer shall pay to
the Corporation a licence fee as may be fixed and
recovered or deducted in the manner as may be
decided by the Corporation, at its sole discretion and
without any previous notice to the Dealer shall from
time to time and at all times be entitled to increase or
revise or modify the said licence fee. …
…
8(j) It is understood by the Dealer that the premises
mentioned in the First Schedule hereunder writer are
Public Premises within the meaning of the provisions of
the Public Premises (Eviction of Unauthorized
Occupants).
…
10. It is specifically agreed and declared that the basic
condition of the grant of the Dealership rights by the
Corporation to the Dealer herein is that the 'Dealer
hereby agreed, undertakes and covenant to uplift and
pay for the following minimum quantities of the product
per month as specified hereunder.
PRODUCTS QUANTITY
MS (Petrol) 30 KLS
HSD 150 KLS
MOTOR OIL/GREASE KL/KG
Other Products viz.
The Corporation shall have the absolute right to revise
the aforesaid minimum quantities/sale targets from
time to time by notice in writing and on every such
revision this clause shall be read and construed as if
such revised figures had been mentioned herein
instead of those hereinabove setout. It is also
specifically agreed that in the event of the Dealer not
achieving the aforesaid minimum quantities at any time
during three out of six consecutive months during the
currency of this Agreement, the Corporation shall be
entitled, notwithstanding any acquiescence or waiver of
this condition in respect of anyone or more months and
notwithstanding any other provision herein contained,
to terminate this Agreement by giving 30 days’ notice
in writing to the Dealer.
Licence Fee
Dealer to
safeguard
Corporation right
in the premises
Minimum
quantity/sale
Targets
…
15. Notwithstanding anything to the contrary herein
contained the Corporation shall be at liberty upon
breach by the Dealer of any covenant in this Agreement
to top and/or suspend forthwith all supplies to the
Dealer and/ or sales from the premises by the Dealer
for such period or periods as the Corporation may think
fit, and such right of stoppage and/or suspension of
supplies shall be in addition to and/or without prejudice
to any other right or remedy of the Corporation under
this Agreement or Law. For the purpose of this clause,
the General Manager of the Corporation for the time
being at Mumbai shall be the Sole Judge as to whether
a breach of any covenant of this agreement has been
committed by the Dealer. The Dealer shall not be
entitled to claim any compensation or damage from the
Corporation on account of any such stoppage and/ or
suspension of supplies.
…
17. ……The Corporation shall have the right to
exercise at its discretion at any time and from time to
time quality control measures for products marketed by
the Corporation and lying with Dealer. The opinion of
the General Manager of the Corporation for the time
being at Mumbai as to whether any product of the
corporation has been contaminated and/or adulterated
shall be final and binding upon the Dealer.
In the event of the said General Manager finding
that the contamination and/or adulteration of product
has been due to any act or default or negligence of the
Dealer or of his servants or agents, the Corporation
shall have the right, without being bound to do so, to
remove the contaminated/ adulterated product and to
destroy or otherwise deal with the same without
making any payment therefor to the Dealer and without
prejudice to the Corporation a right to terminate this
Agreement forthwith.
…
21. It shall be a paramount condition of this Agreement
that the Dealer himself (if he be an individual) or both
partners of the Dealer firm (if the Dealer is a
partnership firm consisting of two partners only) or the
majority of the partners of the Dealer firm (if the Dealer
is a firm consisting of more than two partners) or the
majority of the office bearers / elected members of the
Dealer Ço-operative Society (if the Dealer is a Cooperative
Society) or the Managing/whole time
Corporation’s
right to suspend
supplies
Product
Specification/Con
-
amination/adulte
ration
Terms of
payment
Working
Dealer
Directors (if the Dealer is a Private Limited Company),
as the case may be shall ordinarily be resident in India
and shall take an active part in the management and
running of the Dealership and shall personally
supervise the same and shall not under any
circumstances do so through any other person firm or
body either as 'Benami' or through any 'Power of
Attorney' or otherwise .
…
42. The Dealer shall at all times faithfully, promptly
and diligently observe and perform and carry out at all
times all directions, instructions, guidelines and orders
given or as may be given from time to time by the
Corporation or its representative(s) on safe practices
and marketing discipline and/or for the proper carrying
on of the Dealership of the Corporation. The Dealer
shall also scrupulously observe and comply with all
laws, rules, regulations and requisitions of the
Central/State Government and of all authorities
appointed by them or either of them including in
particular the Chief Controller of Explosives,
Government of India and/or any other local authority
with regard to the safe practices.
43. The Corporation by its officers, representatives or
servants will be entitled at all times to enter upon the
premises and inspect the management of the retail
outlet by the Dealer in all respects and the Dealer shall
be bound to render all assistance and give all
information to the Corporation and its duly authorized
representatives in that behalf and produce to the
Corporation and/or its duly authorized representatives
in that behalf whenever required to do so Invoices/Cash
Memos for all purchases and receipts for all payments
which it is the Dealer's duly to make whether under the
terms of this Agreement or otherwise.
…
45. Notwithstanding anything to the contrary
herein contained, the Corporation shall be at
liberty at its entire discretion to terminate this
Agreement forthwith upon or at any time after
the happening of any of the following events
namely:-
a) If the Dealer shall commit a breach or
default of any of the terms, conditions,
Dealer to
comply with
Corporation’s
directives
Corporation’s
right to inspect
management of
dealership
Forthwith
Termination
covenants and stipulations contained in this
Agreement,…
…
61.(a) Any dispute or difference of any nature
whatsoever, any claim, cross-claim, counter-claim or
set-off or regarding any right, liability, act, omission or
account of any of the parties hereto arising out of or in
relation to this agreement shall be referred to the
sole arbitration of the Director (Marketing) of the
Corporation who may either himself act as the
Arbitrator or nominate some other officer of the
Corporation to act as the Arbitrator. The Dealer
will not be entitled to raise any objection to any such
Arbitrator on the ground that the Arbitrator is an Officer
of the Corporation.”
9. There can be no dispute that the Lease Agreement and
Dealership Agreement are distinct agreements independent of each
other. This is evident from the terms and conditions of the respective
agreements. While the lease agreement was for a fixed period of 29
years from 15th April 2005, after which the lease could be extended by
mutual agreement on mutually agreed terms and conditions, the
dealership agreement was for a period of 15 years from 15th November
2006 and to continue thereafter for successive periods of one year
each, until determined by the other party.
10. Furthermore, the lease agreement specifically authorized the
Appellant to sublet, underlet, assign or transfer possession of the said
premises to any person. The lease agreement also reserved on the
Appellant the right to appoint, remove, reappoint, change or substitute
any dealers, agents, licensees or other authorized representatives of
Arbitration
the Appellant on and in respect of the said premises, without the
consent of the lessor, that is, the Respondent.
11. The dealership agreement was inherently terminable whereas
the lease agreement as stated above was for a fixed period of 29 years
from the date of execution thereof. Clause 3(b) of the lease agreement
specifically provided that, on the lessee paying the rent as per the
lease agreement and performing its conditions, it would be entitled to
peaceably hold and enjoy the said premises without any interruption
by the lessor/s or any person claiming through the lessor/s.
12. Distinctness of the dealership agreement from the lease
agreement is also apparent from the obligation imposed by the
dealership agreement on the Respondent to pay a licence fee for use
of the said premises demised by the Respondent to the Appellant.
13. While the lease agreement provided for reference of disputes to
the Managing Director of the Appellant for arbitration and if the
Managing Director was unable or unwilling to act as a sole Arbitrator,
then the sole arbitration of any other person designated or nominated
by the Managing Director, the dealership agreement provided for
reference of disputes to the sole arbitration of the Director (Marketing)
of the Corporation who might either himself act as the Arbitrator or
nominate some other officer of the Corporation to act as the Arbitrator.
14. The lease agreement expressly provided that disputes under the
said agreement were not to be referred to any person other than the
Managing Director of the Appellant, and if for any reason that was not possible, the matter was not to be referred to arbitration at all. On the other hand, as stated above, disputes under the dealership agreement
were referable to the Director (Marketing) of the Appellant who was
debarred from entertaining any reference of dispute under the lease
agreement.
15. The learned Additional Solicitor General, Ms. Madhavi Diwan,
appearing on behalf of the Appellant referred to a judgment of this
Court in Rahul Yadav and Another v. Indian Oil Corporation
Limited and others1, where this Court clearly held that a dealership
agreement by which the lessor of a land was appointed a dealer was
distinct and independent from the lease agreement by which the land
on which the outlet was installed, had been demised to the Appellant.
16. In Rahul Yadav v. Indian Oil Corporation (supra), this Court
held:-
“18. We have referred to the clauses in extenso to highlight that
the lessee had entered into an agreement of lease with the
appellant with immense liberty and the lease deed does lay
down that the lessee has the freedom to sublet and appoint
another dealer. The lease would remain in force till the
dealership of the appellant continued and the licence remained
in vogue. At this juncture, it is pertinent to reproduce certain
clauses of the dealership agreement which would clearly spell
out the purpose. They read as follows:
“2. The Corporation do hereby grant to the Dealer leave
and licence and permission for the duration of this
Agreement to enter on the said premises and to use the
premises and outfit for the sole and exclusive purpose
of storing, selling and handling the products purchased
by the Dealer from the Corporation, save as aforesaid,
the Dealer shall have no right, title or interest in the
said premises or outfit and shall not be entitled to claim
1 (2015) 9 SCC 447
the right of lessee, sub-lessee, tenant or any other
interest in the premises or outfit, is being specifically
agreed and declared in particular that the Dealer shall
not be deemed to be in exclusive possession of the
premises.
3. This Agreement shall remain in force for five years
from 14th day of May, 2002 and continue thereafter for
successive periods of one year each until determined
by either party by giving three months' notice in writing
to the other of its intention to terminate this
Agreement, and upon the expiration of any such notice
this Agreement and the licence granted as aforesaid
shall stand cancelled and revoked but without prejudice
to the rights of either party against the other in respect
of any matter or thing antecedent to such termination
provided that nothing contained in this clause shall
prejudice the rights of the Corporation to terminate this
Agreement earlier on the happening of the events
mentioned in Clause 56 of this Agreement.
***
7. Nothing contained in this Agreement shall be
construed to prohibit the Corporation from making
direct and/or indirect sales to any person whomsoever
or from appointing other dealers for the purpose of
direct or indirect sales at such places as the
Corporation may think fit. The dealer shall not be
entitled to any claim or allowance for such direct or
indirect sales.”
19. It is appropriate to mention here that Clause 56 of
the said agreement stipulates that notwithstanding
anything to the contrary containing before the said
clause, the Corporation would be at liberty to terminate
the agreement forthwith upon any time after happening
of certain events. The conditions are manifold. We may,
for the sake of completeness, reproduce two conditions:
“(h) If the Dealer does not adhere to the instructions
issued from time to time by the Corporation in
connection with safe practices to be followed by him in
the supply/storage of the Corporation's products or
otherwise.
(i) If the Dealer shall deliberately contaminate or
temper with the quality of any of the Corporation's
products.”
20. On a plain reading of the aforesaid agreement, it is
clear as noon day that it has no connection whatsoever
with the lease agreement. Both the agreements are
independent of each other. The appellant was a dealer
under the lessee, that is, the Corporation. The
dealership is liable to be cancelled on many a ground.
In case there is a termination, dealership is bound to be
cancelled and at that juncture, if the lease deed is
treated to have been terminated along with the
dealership, it will lead to a situation which does not flow
from the interpretation of the instruments. The
dealership agreement has been terminated because of
the decision rendered by this Court in Mukund Swarup
Mishra [(2007) 2 SCC 536]. The consequence of
cancellation of the dealership is a sequitur of the
judgment. The inevitable consequence of that is that
the appellant has to vacate the premises and the
Corporation has the liberty to operate either
independently or through another dealer. The appellant
cannot be allowed to cause obstruction or create an
impediment. The submission that the appellant entered
into the lease agreement at a monthly rent of Rs
10,000 as it was given the dealership is a mercurial
plea, only to be noted to be rejected. The dealership
was availed of as has been held by this Court in an
inapposite manner. In such a situation, consequences
are to be faced by the appellant.”
17. It appears that during a routine inspection on 17th April 2008
certain irregularities were noticed with regard to functioning of the
retail outlet of which the Respondent had been appointed dealer.
18. By a letter dated 17th April 2008, the Appellant directed the
Respondent not to carry on further sales from the said outlet.
Thereafter, a notice dated 18th April 2008 was issued to the
Respondent calling upon the Respondent to show cause why action
should not be taken against the Respondent for irregularities which
amounted to violation of the Marketing Discipline Guidelines (MDG)
2005 issued by the Ministry of Petroleum and Natural Gas, Government
of India and Public Sector Oil Marketing Companies.
19. The Appellant also suspended the sale and supplies to the retail
outlet run by the Respondent. By a letter dated 21st April 2008, the
Respondent replied to the show cause notice admitting the
irregularities alleged.
20. By a letter dated 20th August 2008, the Appellant terminated the
dealership of the Respondent, called upon the Respondent to vacate
the retail outlet and hand over peaceful possession thereof to the
Appellant and also to settle accounts with the Appellant.
21. The Respondent appealed to the Appellate Authority of the
Appellant against the order of termination dated 20th August 2008. By
an order dated 17th July 2009, the Appellate Authority of the Appellant
dismissed the appeal of the Respondent.
22. By a letter dated 24th August 2009, the Respondent invoked the
arbitration clause in the dealership agreement and requested the
Director (Marketing) of the Appellant to appoint an Arbitrator.
23. The Director (Marketing) of the Appellant appointed Mr. B.L
Parihar as Arbitrator in terms of the dealership agreement, by an order
dated 9th November 2009.
24. The Respondent filed its Statement of Claims before the learned
Arbitrator challenging the order of termination of the dealership
agreement. In addition to the prayer for setting aside of the order of
termination of the dealership agreement and the prayer for damages,
the Respondent made an alternative prayer for amendment of the
lease agreement to enhance the monthly rent of the said premises to
Rs.35,000/- with a 20% increase after every three years.
25. The Appellant filed its Written Statement to the Statement of
Claim. In its Written Statement, the Appellant contended: -
“2. The Claimant alternatively claimed a sum of Rs.45,28,000/-
with interest at the rate of Rs.15% per annum and further
claimed increase in lease rent to Rs.35,000/- per month with
20% increase after every three years. The said alternative
prayers of the Claimant are outside the ambit of this
arbitration proceedings and hence not maintainable
and are liable to be rejected.
xxx xxx xxx
9. … The rent was fixed after the Claimant had negotiated
with the Committee of Officials of the Respondent and had
agreed to the amount of rent. As such the Rent was fixed
mutually between the parties. The Respondent further
submits that the Claimant has been regularly accepting the
monthly rent of Rs.1750/- from 2005 till date and has never
raised any objection to the amount of the said Rent till filing of
this Statement of Claim. As such the Claimant has raised this
issue of monthly rent as purely an afterthought in this
Statement of Claim.”
xxx xxx xxx
29. The alternative prayers of the Claimant at para
34(b)(I)(II) are not within the ambit of the Arbitration
proceedings and hence not maintainable and not
admitted by the Respondent. The Claimant has no ground
whatsoever to call upon the Arbitrator to Order the
Respondent to pay to the Claimant the sum of Rs.45,28,000/-
with interest at the rate of 15% per annum from the date of
filing the claim till the payment by the Claimant. Without
challenging the registered Lease Deed executed by the
Claimant the Claimant cannot seek Order of the Hon’ble
Arbitrator to modify the terms of the Lease Deed.
Therefore the alternative prayers of the Claimant are
also be liable to be rejected in toto.
26. The main issues which arose for determination before the
learned Arbitrator were:-
“….
3. Whether the Claimant committed breaches of MDG
Guideline and Dealership Agreement dated 15.11.2006 and
whether the claimant is entitled for restoration?
4. Whether the Termination letter dated 20.08.2009 is
legal, valid and subsisting?
5. Whether the Claimant proves that the Claimant is
entitled for Order/Decree against the Respondent for the sum
of Rs.45,28,000/-?
6. Whether this Arbitral Tribunal has jurisdiction to
increase monthly Lease Rent from Rs.1750/- per month to
Rs.35,000/- per month with 20% increase after every three
years?
7. Whether the Claimant proves that the Claimant is
entitled for increase in monthly lease rent from Rs.1,750/- per
month to Rs.35,000/- per month with 20% increase after every
three years?”
27. The learned Arbitrator made and published an award dated
04.11.2010 holding :-
“FINDINGS AS TO ISSUE NO.2, 3 & 4
…I hold that the Claimant has committed the breaches of
terms and conditions of the Dealership Agreement dated
15.11.2006 and MDG 2001 and therefore Termination Letter
dated 20.08.2008 issued by the Respondent is legal & valid. I
therefore find that the Claimant therefore is not entitled for
any restoration.
FINDINGS AS TO ISSUE NO.5
I find that the Claimant has made investment of Rs.45,28,000/-
whereas the Respondent has also made investment of
Rs.57,00,000/- for construction of Retail Outlet and allied
expenditures. The Claimant has committed the serious
irregularities which are not at all permitted as per the said
Dealership agreement & MDG and provision penalties are also
made thereof, which has caused the serious loss of goodwill
and reputation to the Respondent Company. Due to the
serious irregularities, the Claimant’s dealership was
terminated. The Claimant therefore is not entitled for sum of
Rs.45,28,000/- and interest thereon.
FINDINGS AS TO ISSUE NO.6 & 7
The Claimant had raised an Appeal before Executive Director
(Retail Sales) of the Respondent to revoke the termination of
Dealership on humanitarian ground since lease rent of the land
is too low to survive. The Claimant submitted that the
Claimant offered and agreed to let out his Land on Long Lease
for monthly rent of Rs.1,750/- only because the Respondent
agreed to allot the dealership of petrol pump as his plot of land
and the monthly income from the said dealership was assured.
I have perused the Government Valuation Report of the
Land of the Claimant (Exhibit “O”) and instance of one
Mr. Bajirao Jadhav relied upon the Claimant (Exhibit
“P”) to prove the market rate of the vicinity of the Land
of the Claimant. Both the documents are registered
documents. The Lease Agreements executed by Mr.
Bajirao Jadhav and the Claimant are altogether
different with different terms and conditions and negotiations
between the parties. The Claimant and Respondent are bound
by terms and conditions of Lease Agreement dated 20.09.2005
and this Arbitral Tribunal cannot go beyond the Lease
Agreement dated 20.09.2005 have provided and determined
the rates of rent and increases in the rent and the same are
binding upon the parties. I find that since the Dealership of
petrol pump is already terminated there shall be no income of
the dealership to the claimant other than the lease rent which
is too low to survive and claimant had agreed to let out his
Land on Long Lease for monthly rent of Rs.1,750/- only
because the Respondent agreed to allot the dealership of
petrol pump as his plot of land therefore the Claimant is
entitled to get some reasonable increase in the monthly lease
rent of the said land for survival but increase not to the tune of
Rs.35000/- from Rs.1750/- as submitted by the Claimant.
Award
1. The Termination of dealership order dated 20.08.2008 is
valid, legal and binding upon the Claimant and the
Respondent. The Claimant is not entitled for restoration of
dealership.
2. The claimant is not entitled, for claim of Rs.45,28,000/- and
interest thereon.
3. The monthly lease rent of the said land to be increased from
Rs.1750/- to Rs.10000/- with 10% increase after every three
years w.e.f. the date of the termination of the dealership and
period of lease deed to be kept as per period mentioned in the
advertisement published in the News Paper on 6.7.2005.
With the above award, I have concluded the arbitration
proceedings and published this award on 4.11.2010.”
28. The Appellant filed an application being Civil Misc. Application
No. 115 of 2011 under Section 34 of the Arbitration and Conciliation
Act, 1996, hereinafter referred to as “the 1996 Act” for setting aside of the said award in the Court of the District Judge, Pune. The
Respondent filed its cross objection to the impugned award and also
filed a counter claim in the Court of the District Judge, Pune.
29. The counter claim filed by the Respondent was apparently
misconceived. There could be no question of any counter claim to an
application for setting aside of an award.
30. Section 5 of the 1996 Act provides that notwithstanding anything
contained in any other law for the time being in force, in matters
governed by Part I of the 1996 Act, no judicial authority shall intervene except where so provided in Part I.
31. Section 34 in Part I of the 1996 Act as it is stood at the material
time provided as follows:
"34. Application for setting aside arbitral award.—(1)
Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance with
sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application furnishes proof that
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case;
or
(iv) the arbitral award deals with a dispute not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
19
only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be
set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of
the parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot
derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being
in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
[Explanation 1.—For the avoidance of any doubt, it is clarified
that an award is in conflict with the public policy of India, only
if,—
(i) the making of the award was induced or affected by fraud
or corruption or was in violation of Section 75 or Section
81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.—For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of the
dispute.]
[(2-A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
evidence.]”
32. As observed above, the lease agreement and the dealership
agreement are distinct agreements, independent of each other.
Disputes under the lease agreement were referrable to the arbitration
of the Managing Director of the Appellant who was to be the sole
Arbitrator, and only if the Managing Director was unable or unwilling to
act as sole Arbitrator the disputes were to be referred to the sole
Arbitrator designated or nominated by the Managing Director in his
place. If the disputes could not be referred to the Managing Director
for any reason, the matter was not to be referred to arbitration at all.
33. In the instant case, the Respondent invoked the Arbitration
Clause under the Dealership Agreement and approached the Director
(Marketing) of the Appellant who appointed Mr. B.L. Parihar as the sole
Arbitrator. The Arbitrator, Mr. B.L. Parihar, nominated by the Director
(Marketing) of the Appellant had no authority and/or jurisdiction to
adjudicate any dispute pertaining to the lease agreement.
34. The Arbitral Award is liable to be set aside in so far as the same
deals with disputes with regard to the Lease Agreement which are not
contemplated by the Arbitration Clause in the dealership agreement
and/or in other words, do not fall within the terms of the submission to
Arbitration. The Arbitral award is thus liable to be set aside under
Section 34(2)(a)(iv) of the 1996 Act. The decision enhancing the lease
rent is patently beyond the scope of the submission to arbitration.
Moreover, the composition of the Arbitral Tribunal or the arbitral
procedure was not in accordance with the lease agreement dated 20th
September, 2005.
35. By a judgment and order dated 29th January 2013, the District
Judge-3, Pune allowed the Counter Objection of the Respondent to the award in part and modified the award by deleting the last clause, that is, “and the period of Lease Deed to be kept as per the period
mentioned in the advertisement published in the newspapers on
6.7.2005” with the observation that the term of agreement if wholly
prejudicial or capable of causing grave injustice to one of the parties,
could certainly be overlooked not only by Court of Justice, but also by
the Arbitrator. The District Judge held that the learned Arbitrator had
rightly enhanced the rent to Rs. 10,000/- with 10% increase after every
three years. However, the learned Court held that it was not within
the province of the Arbitrator to decrease the lease period to 19 years
and 11 months as per the advertisement given in the newspapers.
36. Both the Respondent and Appellant appealed to the Bombay
High Court under Section 37 of the 1996 Act challenging the judgment
and order of the District Judge-3, Pune.
37. By a judgment and order dated 11th September 2015, the High
Court partly allowed the Arbitration Appeal No.19 of 2013 filed by the
Respondent and dismissed Arbitration Appeal No.39 of 2013 filed by
the Appellant observing that there was no scope for the District Court
to interfere with the impugned award. The High Court held:-
“10. Coming to the interference by the appellate court with
the award on the dispute under the lease agreement, it is
patent from the impugned order that the interference with the
same was beyond the provision of Section 34 of the Arbitration
Act. The learned Judge on the one hand permitted
enhancement of the lease rent but denied the reduction of the
lease period. The learned Judge lost sight of the fact that the
claimant had contended before the learned Arbitrator that he
was compelled by the respondent to agree for the lease of 29
years and 11 months, though the advertisement permitted
him dealership for only 19 years and 11 months. It is nobody’s
case that the lease rent of Rs.1,750/- per month was at the
market rate at the relevant time. It is obvious that the
claimant had agreed for the extended period of the lease only
because the same was coupled with the dealership agreement.
In the circumstances, there was no scope for the District Court
to interfere with the impugned award. To that extent, the
appeal of the claimant must be allowed and the directions
contained in the impugned order at paragraph “2” be set
aside. Hence, Arbitration Appeal No.39 of 2013 is dismissed.
Arbitration Appeal No.19 of 2013 is partly allowed. The
direction at para 2 of the impugned order is set aside.”
38. In the High Court, learned senior counsel appearing for the
Appellant had submitted that adjudication of the dispute under the
lease agreement was beyond the jurisdiction of the learned Arbitrator.
It was pointed out that the lease agreement provided for a specified
Arbitrator that is the Managing Director of the Appellant or any other
person designated or nominated by the Managing Director. The
Arbitrator in the instant case, Mr. B.L. Parihar, had been appointed
pursuant to the Dealership Agreement by the Director (Marketing) of
the Appellant. The High Court rejected the aforesaid contention with
the observation:-
“9. Perusal of the record however shows that no such
contention was taken before the Arbitrator as also in
the application filed under Section 34 of the Arbitration
Act. Therefore, the appellant cannot be allowed to raise it for
the first time before this court. Because it would mean that
the claimant has accepted Mr. B.L. Parihar as the Arbitrator for
the dispute under the lease agreement.”
39. In so far as disputes with regard to lease rent and/or any other
conditions of the deed of lease were concerned, the High Court
proceeded on the patently erroneous basis that the Appellant had not
objected to the competence or the authority or jurisdiction of the
learned Arbitrator to entertain and decide disputes with regard to lease
agreement, ignoring the specific averments made by the Appellant in
its counter statement, which have been extracted hereinabove.
40. In its counter statement, the Appellant had specifically averred
that the alternate prayer of the Respondent claiming increase in lease
rent to Rs.35,000/- per month with 20% increase in every three years
was outside the ambit of the arbitration proceedings. The Appellant
also asserted categorically that, without challenging the registered
lease deed executed by it, the Respondent could not seek an order of
the Arbitrator, modifying the terms of the lease deed.
41. The High Court also apparently overlooked the fact that the
jurisdiction of the Arbitral Tribunal to increase the monthly lease rent
from Rs.1750/- per month to Rs.35,000/- per month was specifically in
issue before the learned Arbitrator (Issue No.6) as evident from the
impugned award.
42. As held by this Court in Associate Builders v. Delhi
Development Authority2, cited by Mr. Prasenjit Keswani, learned
counsel appearing on behalf of the Respondent, Section 34 in
conjunction with Section 5 of the 1996 Act makes it clear that an
arbitral award that is governed by Part I of the 1996 Act, can only be
set aside on grounds mentioned under Sections 34(2) and (3) of the
said Act and not otherwise. The Court considering an application for
setting aside an award, under Section 34 of the 1996 Act cannot look
2 (2015) 3 SCC 49
24
into the merits of the award except when the award is in conflict with
the public policy of India as provided in Section 34(2)(b)(ii) of the 1996
Act.
43. In Associate Builders (supra), this Court held that an award
could be said to against the public policy of India in, inter alia, the
following circumstances: -
(i) When an award is, on its face, in patent violation of a
statutory provision.
(ii) When the Arbitrator/Arbitral Tribunal has failed to adopt a
judicial approach in deciding the dispute.
(iii) When an award is in violation of the principles of natural
justice.
(iv) When an award is unreasonable or perverse.
(v) When an award is patently illegal, which would include an
award in patent contravention of any substantive law of
India or in patent breach of the 1996 Act.
(vi) When an award is contrary to the interest of India, or
against justice or morality, in the sense that it shocks the
conscience of the Court.
44. An Arbitral Tribunal being a creature of contract, is bound to act
in terms of the contract under which it is constituted. An award can
be said to be patently illegal where the Arbitral Tribunal has failed to
act in terms of the contract or has ignored the specific terms of a
contract.
45. However, a distinction has to be drawn between failure to act in
terms of a contract and an erroneous interpretation of the terms of a
contract. An Arbitral Tribunal is entitled to interpret the terms and
25
conditions of a contract, while adjudicating a dispute. An error in
interpretation of a contract in a case where there is valid and lawful
submission of arbitral disputes to an Arbitral Tribunal is an error within
jurisdiction.
46. The Court does not sit in appeal over the award made by an
Arbitral Tribunal. The Court does not ordinarily interfere with
interpretation made by the Arbitral Tribunal of a contractual provision,
unless such interpretation is patently unreasonable or perverse.
Where a contractual provision is ambiguous or is capable of being
interpreted in more ways than one, the Court cannot interfere with the
arbitral award, only because the Court is of the opinion that another
possible interpretation would have been a better one.
47. In Associate Builders (supra), this Court held that an award
ignoring the terms of a contract would not be in public interest. In the
instant case, the award in respect of the lease rent and the lease term
is in patent disregard of the terms and conditions of the lease
agreement and thus against public policy. Furthermore, in Associate
Builders (supra) the jurisdiction of the Arbitral Tribunal to adjudicate a
dispute itself was not in issue. The Court was dealing with the
circumstances in which a Court could look into the merits of an award.
48. In this case, as observed above, the impugned award insofar as
it pertains to lease rent and lease period is patently beyond the scope
of the competence of the Arbitrator appointed in terms of the
dealership agreement by the Director (Marketing) of the Appellant.
26
49. The lease agreement which was in force for a period of 29 years
with effect from 15th April, 2005 specifically provided for monthly lease
rent of Rs.1750 per month for the said plot of land on which the retail
outlet had been set up. It is well settled that an Arbitral Tribunal, or for
that matter, the Court cannot alter the terms and conditions of a valid
contract executed between the parties with their eyes open.
50. In Ssangyong Engineering and Construction Company
Limited v. National Highways Authority of India (NHAI)3, this
Court held:
“76. However, when it comes to the public policy of India,
argument based upon “most basic notions of justice”, it is
clear that this ground can be attracted only in very exceptional
circumstances when the conscience of the Court is shocked by
infraction of fundamental notions or principles of justice. It can
be seen that the formula that was applied by the agreement
continued to be applied till February 2013 — in short, it is not
correct to say that the formula under the agreement could not
be applied in view of the Ministry's change in the base indices
from 1993-1994 to 2004-2005. Further, in order to apply a
linking factor, a Circular, unilaterally issued by one party,
cannot possibly bind the other party to the agreement without
that other party's consent. Indeed, the Circular itself expressly
stipulates that it cannot apply unless the contractors furnish
an undertaking/affidavit that the price adjustment under the
Circular is acceptable to them. We have seen how the
appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not
and cannot apply. This being the case, it is clear that the
majority award has created a new contract for the parties by
applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula
dehors the agreement. This being the case, a fundamental
principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract can never be
foisted upon an unwilling party, nor can a party to the
agreement be liable to perform a bargain not entered into with
the other party. Clearly, such a course of conduct would be
contrary to fundamental principles of justice as followed in this
3 . (2019) 15 SCC 131
27
country, and shocks the conscience of this Court. However, we
repeat that this ground is available only in very exceptional
circumstances, such as the fact situation in the present case.
Under no circumstance can any court interfere with an arbitral
award on the ground that justice has not been done in the
opinion of the Court. That would be an entry into the merits of
the dispute which, as we have seen, is contrary to the ethos of
Section 34 of the 1996 Act, as has been noted earlier in this
judgment.”
51. In PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of
V.O. Chidambranar Port Trust Tuticorin and Others4 this Court
referred to and relied upon SSangyong Engineering and
Construction Company Limited (supra) and held:
“87. As such, as held by this Court in Ssangyong Engineering
and Construction Company Limited (supra), the fundamental
principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract has been foisted
upon an unwilling party. This Court has further held that a
party to the Agreement cannot be made liable to perform
something for which it has not entered into a contract. In our
view, re-writing a contract for the parties would be breach of
fundamental principles of justice entitling a Court to interfere
since such case would be one which shocks the conscience of
the Court and as such, would fall in the exceptional category.”
52. In PSA SICAL Terminals Pvt. Ltd. (supra) this Court clearly
held that the role of the Arbitrator was to arbitrate within the terms of
the contract. He had no power apart from what the parties had given
him under the contract. If he has travelled beyond the contract, he
would be acting without jurisdiction.
53. In PSA SICAL Terminals Pvt. Ltd. (supra) this Court referred
to and relied upon the earlier judgment of this Court in MD. Army
4 . (2021) SCC Online SC 508
28
Welfare Housing Organization v. Sumangal Service (P) Ltd.5 and
held that an Arbitral Tribunal is not a court of law. It cannot exercise its
power ex debito justitiae.
54. In Satyanarayana Construction Company v. Union of India
and Others6, a Bench of this Court of coordinate strength held that
once a rate had been fixed in a contract, it was not open to the
Arbitrator to rewrite the terms of the contract and award a higher rate.
Where an Arbitrator had in effect rewritten the contract and awarded a
rate, higher than that agreed in the contract, the High Court was held
not to commit any error in setting aside the award.
55. There can be no dispute with the proposition of law enunciated
by this Court in Central Inland Water Transport Corporation
Limited and Another v. Brojo Nath Ganguly and Another7, cited
by Mr. Keswani. The judgment, however, has no application in this
case.
56. In Brojo Nath Ganguly (supra), this Court held that a term in a
contract of employment as also service rules of a Government
company providing for termination of services of permanent
employees without assigning reasons, on three months’ notice, or pay
in lieu thereof was unconscionable, arbitrary and opposed to public
policy. This Court was not concerned with any lease agreement or any
dealership agreement in the aforesaid case.
5 . (2004) 9 SCC 619
6 (2011) 15 SCC 101
7 (1986) 3 SCC 156
29
57. In this case, there is no finding by the Arbitral Tribunal that any
condition of the dealership agreement was unconscionable and the
Arbitral Tribunal has not interfered with termination of the dealership
agreement.
58. The Appellant and the Respondent entered into the lease
agreement in this case with their eyes open. The Respondent had the
option not to lease out its property to the Appellant. The situation of
an owner of property, executing a lease agreement in respect of his
property cannot be equated with a contract of employment executed
by and between an employee and a mighty employer, where the
employee has little option but to accept the terms and conditions
offered by the employer.
59. It is well settled that a judgment of a Court is precedent for the
issue of law which is raised and decided. Words and phrases used in a
judgment cannot be read in isolation, out of context. To quote the
distinguished author V. Sudhish Pai “Judgments and observations in
judgments are not to be read as Euclid’s theorems or as provisions of
statute. Judicial utterances/pronouncements are in the setting of the
facts of a particular case. To interpret words and provisions of a
statute it may become necessary for judges to embark upon lengthy
discussions, but such discussion is meant to explain not define.
Judges interpret statutes, their words are not be interpreted as
statutes. Thus, precedents are not to be read as statutes .”8
8 . Constitutional Supremacy-A Revisit, Essays on Constitutionalism, Rule of
Law & Constitutional Adjudication by Mr. V. Sudhish Pai
30
60. For the reasons discussed above, the appeal is allowed. The
impugned judgment of High Court is set aside. The impugned
judgment of the District Court insofar as the same pertains to lease
rent and lease period is also set aside.
61. The impugned award dated 04.11.2010 is set aside to the extent
that the Arbitrator has increased the monthly lease rent of the land in
question from Rs.1750/- to Rs.10000/- with 10% increase after every
three years w.e.f. the date of the termination of the dealership and to
the extent the Arbitrator has reduced the period of lease from 29 years
to 19 years and 11 months.
.………………………………….J.
[ INDIRA BANERJEE ]
…………………………………..J.
[ ABHAY S. OKA ]
NEW DELHI;
FEBRUARY 01, 2022
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