Supreme Court of India
INDIAN OIL CORPORATION LTD. THROUGH ITS SENIOR MANAGERversusM/S SHREE GANESH PETROLEUM RAJGURUNAGAR THROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITE
- Citation
- 2022 INSC 130
- Decided
- 1 February 2022
- Disposal
- Appeal(s) allowed
- Bench
- INDIRA BANERJEE
Holding
The Supreme Court set aside the arbitral award to the extent it altered lease rent and lease period, holding that the arbitrator, appointed under the dealership agreement, lacked jurisdiction over lease‑related disputes and the award was patently illegal under Section 34 of the Arbitration and Conciliation Act, 1996.
Summary
Indian Oil Corporation Ltd. (IOCL) terminated its dealership agreement with Shree Ganesh Petroleum and the dispute over the lease of the land was referred to arbitration under the dealership agreement. The arbitrator, appointed by the Director (Marketing) of IOCL, increased the lease rent from Rs.1,750 to Rs.10,000 and reduced the lease term, actions that were outside the scope of the arbitration clause in the dealership agreement. The High Court upheld the award, but the Supreme Court held that the arbitrator lacked jurisdiction to decide lease‑related matters, making the award patently illegal under Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996. Consequently, the award was set aside insofar as it dealt with lease rent and lease period, and the High Court’s judgment was reversed. The appeal was allowed, restoring the original lease terms.
Issues considered
- The arbitrator appointed under the dealership agreement had jurisdiction to adjudicate disputes arising under the lease agreement, including rent increase and lease term alteration.
- Whether the arbitral award is liable to be set aside under Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 for dealing with matters beyond the scope of the arbitration agreement.
- Whether the award is patently illegal and contrary to public policy for exceeding the arbitrator's contractual authority.
- The correctness of the High Court’s refusal to entertain the appellant’s jurisdictional objection.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 34, s. 37, s. 5
Subjects
ArbitrationJurisdictionSection 34Lease agreementDealership agreementPublic policyArbitral award setting asideContract interpretation
Judgment
450 [2022]REPORTS
SUPREME COURT 16 S.C.R. 450 [2022] 16 S.C.R.
A INDIAN OIL CORPORATION LTD. THROUGH ITS SENIOR
MANAGER
v.
M/S SHREE GANESH PETROLEUM RAJGURUNAGAR
THROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITE
B
(Civil Appeal Nos. 837-838 of 2022)
FEBRUARY 01, 2022
[INDIRA BANERJEE AND ABHAY S. OKA, JJ.]
Arbitration And Conciliation Act, 1996 : ss. 34, 37 – Arbitral
C
award – Setting aside of – Parties entered into two agreements,
dealership agreement and lease agreement having distinct provisions
for reference of the dispute to the arbitrator – Termination of the
dealership agreement by the appellant – Appointment of an
arbitrator in terms of the agreement – Arbitrator passed an award
D holding that the termination of the dealership was valid, and
increased the monthly lease rent and reduced the period of the lease
– Challenge to, by the appellant and the respondent – High Court
partly allowed the respondent’s appeal and dismissed the appellant’s
appeal holding that there was no scope for the district court to
interfere with the award – On appeal, held: An arbitral tribunal
E
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
unquestionably illegal where the arbitral tribunal has failed to act
in terms of the specificities of the contract – An arbitral tribunal is
entitled to interpret the terms and conditions of a contract, while
F 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 while
adjudicating a dispute – Court does not sit in appeal over the award
made by an arbitral tribunal – Court does not ordinarily interfere
with the interpretation made by the arbitral tribunal of a contractual
G
provision, unless such interpretation is patently unreasonable or
perverse – 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 – An
arbitral tribunal, or for that matter, the Court cannot alter the terms
H
450
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 451
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
and conditions of a valid contract executed between the parties A
with their eyes open – Judgment of the High Court set aside, as
also of the District Court insofar as the same pertains to lease rent
and lease period.
Allowing the appeal, the Court
HELD: 1.1 The lease agreement and the dealership B
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 C
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. In the instant case, the
respondent invoked the Arbitration Clause under the Dealership
Agreement and approached the Director (Marketing) of the D
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. [Para
32, 33][476-C-F] E
1.2 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 Arbitrator to entertain and decide disputes with F
regard to lease agreement, ignoring the specific averments made
by the appellant in its counter statement. 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 G
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. The High
Court also apparently overlooked the fact that the jurisdiction of
the arbitral tribunal to increase the monthly lease rent from H
452 SUPREME COURT REPORTS [2022] 16 S.C.R.
A Rs.1750/- per month to Rs.35,000/- per month was specifically in
issue before the arbitrator as evident from the impugned award.
[Para 39, 40, 41][478-E-H; 479-A]
1.3 An arbitral tribunal being a creature of contract, is bound
to act in terms of the contract under which it is constituted. An
B 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. An arbitral tribunal is entitled to interpret
the terms and 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
C tribunal is an error within jurisdiction. [Para 44, 45][479-G; 480-
A-B]
1.4 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
D 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
E been a better one. [Para 46][480-C]
1.5 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. The appellant and the respondent entered
F into the lease agreement 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
G terms and conditions offered by the employer. [Para 57, 58][483-
C-E]
1.6 The impugned judgment of the 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. The
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 453
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
impugned award dated 04.11.2010 is set aside to the extent that A
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. [Para 60,
B
61][484-A-C]
MD. Army Welfare Housing Organization v. Sumangal
Service (P) Ltd. (2004) 9 SCC 619 : [2003] 4 Suppl.
SCR 385 – relied on.
Associate Builders v. Delhi Development Authority C
(2015) 3 SCC 49 : [2014] 13 SCR 895 – distinguished.
Central Inland Water Transport Corporation Limited
and Anr. v. Brojo Nath Ganguly and Anr. (1986) 3 SCC
156 : [1986] 2 SCR 278 – held inapplicable.
Rahul Yadav & Anr. v. Indian Oil Corporation Ltd. & D
Ors. (2015) 9 SCC 447 : [2015] 7 SCR 978; Mukund
Swarup Mishra v. Union of India (UOI) and Ors. (2007)
2 SCC 536 : [2007] 1 SCR 825; PSA SICAL Terminals
Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar
Port Trust Tuticorin and Ors. (2021) AIR 4661; E
Ssangyong Engineering and Construction Co. Limited
v. National Highways Authority of India (2019) 15 SCC
131 : [2019] 7 SCR 522; Satyanarayana Construction
Co. v. Union of India and Ors. (2011) 15 SCC 101 –
referred to.
F
Constitutional Supremacy-A Revisit, Essays on
Constitutionalism, Rule of Law & Constitutional
Adjudication by Mr. V. Sudhish Pai – referred to.
Case Law Reference
[2015] 7 SCR 978 referred to Para 15 G
[2007] 1 SCR 825 referred to Para 20
[2014] 13 SCR 895 distinguished Para 42
[2019] 7 SCR 522 referred to Para 50
H
454 SUPREME COURT REPORTS [2022] 16 S.C.R.
A [2003] 4 Suppl. SCR 385 relied on Para 53
[1986] 2 SCR 278 held inapplicable Para 55
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 837-
838 of 2022.
B From the Judgment and Order dated 11.09.2015 of the High Court
of Judicature at Bombay in Arbitration Appeal No. 19 of 2013 and
Arbitration Appeal No. 39 of 2013.
Amit Meharia, Ms. Tannishtha Singh, Abinash Agarwal, Ms. Neha
Maniktala, M/S. Meharia & Company, Advs. for the Appellant.
C Mrs. V. D. Khanna, Adv. for the Respondent.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
Leave granted.
D 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.
E 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
F 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 above mentioned Property is owned by SHRI.
LAXMAN DAGDU THITTE. The said leased Property is more
G
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
H the LESSEE for a term of 29 (TWENTY NINE years,
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 455
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
commencing from the 20th day of SEPTEMEBR 2005 A
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
B
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: C
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. D
...
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
E
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.
…
F
(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 G
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, H
456 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B
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,
C 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.
D
…
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
E 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
F 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
G 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
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 457
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
above name whomsoever it chooses without the consent of A
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. B
……
(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, C
conditions and Agreements to be mutually agreed upon
between the Parties.
…
5. Any dispute or difference of any nature whatsoever D
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 E
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 F
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 G
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
H
458 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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.”
B
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.
C
8. The dealership agreement, inter alia,
provided:-
“AND WHEREAS the Corporation carries
on the business of refining and sale of Recitals
D petroleum products and more particularly
of Motor Spirit (MS) and High Speed Diesel
Oil (HSD):
AND WHEREAS the Corporation is the
1st Schedule
Owner/Lessee/Tenant/licensee of a Plot of
E 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/
F 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
G Corporation has agreed to appoint the 2nd Schedule
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.
H ….
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 459
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
2.This agreement shall remain in force for A
Period
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
B
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 C
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/
D
or the sales from the premises by the Dealer
pursuant to the provisions contained in that
behalf in this Agreement.
…
4. The Corporation reserves the right E
Corporation’s
without reference to or consent of the
right to appoint
Dealer to appoint one or more additional
additional
Dealer/s in the same town/area or location
Dealer/s
and such additional Dealer/s shall be
entitled to make sales of the products
without any objection from the Dealer and F
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 G
additional Dealer/s.
…
7.(a) The Dealer undertakes that he and
his servants and agents will observe and
H
460 SUPREME COURT REPORTS [2022] 16 S.C.R.
A perform the provisions of the Petroleum Act,
The Petroleum
1934 and the Explosives Act, 1884 and any
Act
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
B
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
C 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
D
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
E 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,
F 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
G 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
H or Statutory Rules, Regulations or Bye-
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 461
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
Laws made thereunder and/ or applicable A
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
responsible in any manner for any liabilities B
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 Licence Fee C
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 D
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 E
Dealer to
premises mentioned in the First Schedule safeguard
hereunder writer are Public Premises within Corporation right
the meaning of the provisions of the Public in the premises
Premises (Eviction of Unauthorized
Occupants). F
…
10. It is specifically agreed and declared
that the basic condition of the grant of the
Dealership rights by the Corporation to the Minimum
Dealer herein is that the ‘Dealer hereby quantity/sale G
agreed, undertakes and covenant to uplift Targets
and pay for the following minimum
quantities of the product per month as
specified hereunder.
H
462 SUPREME COURT REPORTS [2022] 16 S.C.R.
A PRODUCTS QUANTITY
MS (Petrol) 30 KLS
HSD 150 KLS
MOTOR OIL/GREASE KL/KG
B 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
C 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
D 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
E 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.
F …
15. Notwithstanding anything to the
contrary herein contained the Corporation Corporation's
shall be at liberty upon breach by the right to suspend
Dealer of any covenant in this Agreement supplies
G 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
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 463
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
without prejudice to any other right or A
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
B
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. C
…
17. ……The Corporation shall have the
right to exercise at its discretion at any time Product
and from time to time quality control Specification/
measures for products marketed by the Conamination/ D
Corporation and lying with Dealer. The adulteration
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/ E
or adulterated shall be final and binding
upon the Dealer.
In the event of the said General
Manager finding that the contamination Terms of
and/or adulteration of product has been payment
F
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 G
without making any payment therefor to the
Dealer and without prejudice to the
Corporation a right to terminate this
Agreement forthwith.
… H
464 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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 Working
partnership firm consisting of two partners Dealer
only) or the majority of the partners of the
B
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 Co- operative Society) or the
C Managing/whole time 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
D
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 .
…
E
42. The Dealer shall at all times faithfully,
promptly and diligently observe and
perform and carry out at all times all Dealer to
directions, instructions, guidelines and comply with
orders given or as may be given from time Corporation's
F to time by the Corporation or its directives
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
G 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
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 465
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
India and/or any other local authority with A
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 Corporation’s
inspect the management of the retail outlet right to inspect B
by the Dealer in all respects and the Dealer management of
shall be bound to render all assistance and dealership
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 C
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. D
Forthwith Termination
…
45. Notwithstanding anything to the
contrary herein contained, the Corporation E
Forthwith
shall be at liberty at its entire discretion to
Termination
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 F
default of any of the terms, conditions,
covenants and stipulations contained in
this Agreement,…
…
61.(a) Any dispute or difference of any G
nature whatsoever, any claim, cross-claim,
Arbitration
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
H
466 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B
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.
C 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
D 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
E Appellant the right to appoint, remove, reappoint, change or substitute
any dealers, agents, licensees or other authorized representatives of
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
F 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.
G
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.
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 467
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
13. While the lease agreement provided for reference of disputes A
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
B
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 C
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, D
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 E
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 F
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 G
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
1
(2015) 9 SCC 447 H
468 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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 the right
B
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
C 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
D 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
E happening of the events mentioned in Clause 56 of this
Agreement.
***
7. Nothing contained in this Agreement shall be construed
F 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.”
G
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.
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 469
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
The conditions are manifold. We may, for the sake of A
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. B
(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 C
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 D
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 E
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 F
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 G
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.
H
470 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B
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
C 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.
D
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.
E 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
F 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
G
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: -
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 471
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
“2. The Claimant alternatively claimed a sum of Rs.45,28,000/ A
- 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
B
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 C
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 D
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 E
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 F
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 G
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? H
472 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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/-?
B 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
C 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
D
…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
E 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
F 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
G 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
H (Retail Sales) of the Respondent to revoke the termination of
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 473
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
Dealership on humanitarian ground since lease rent of the A
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
B
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 C
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 D
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 E
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 F
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 G
dealership.
2. The claimant is not entitled, for claim of Rs.45,28,000/- and
interest thereon.
H
474 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B
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
C 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.
D
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.
E 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
F 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
G (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
H notice of the appointment of an arbitrator or of the
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 475
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
arbitral proceedings or was otherwise unable to A
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 B
arbitration:
Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains decisions on matters not submitted to C
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 D
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 E
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
F
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
G
(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.
H
476 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B 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
C 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,
D 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.
E 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.
F
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
G 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.
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 477
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
35. By a judgment and order dated 29th January 2013, the District A
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
B
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 C
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 D
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 E
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 F
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 G
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 H
478 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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.”
B 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
C 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
D 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.”
E 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
F 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
G 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
H
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 479
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
from Rs.1750/- per month to Rs.35,000/- per month was specifically in A
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 Authority 2, cited by Mr. Prasenjit Keswani, learned
counsel appearing on behalf of the Respondent, Section 34 in conjunction B
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 into the merits of the award
except when the award is in conflict with the public policy of India as C
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: -
D
(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 E
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
F
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 G
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.
2
(2015) 3 SCC 49 H
480 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
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
B
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
C 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
D 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
E 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
F agreement by the Director (Marketing) of the Appellant.
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
G 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:
3
H (2019) 15 SCC 131
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 481
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
“76. However, when it comes to the public policy of India, A
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
B
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 C
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
D
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 E
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
F
be contrary to fundamental principles of justice as followed
in this 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 G
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.”
H
482 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B 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
C 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.”
D 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.
E 53. In PSA SICAL Terminals Pvt. Ltd. (supra) this Court referred
to and relied upon the earlier judgment of this Court in MD. Army
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.
F 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
G than that agreed in the contract, the High Court was held not to commit
any error in setting aside the award.
4
(2021) SCC Online SC 508
5
(2004) 9 SCC 619
6
H (2011) 15 SCC 101
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM 483
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
55. There can be no dispute with the proposition of law enunciated A
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 B
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.
C
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 D
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. E
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 F
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 G
statutes. Thus, precedents are not to be read as statutes.”8
7
(1986) 3 SCC 156
8
Constitutional Supremacy-A Revisit, Essays on Constitutionalism, Rule of Law &
Constitutional Adjudication by Mr. V. Sudhish Pai H
484 SUPREME COURT REPORTS [2022] 16 S.C.R.
A 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
B 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.
C
Nidhi Jain and Amarendra Kumar Appeal allowed.
(Assisted by : Iram Jan, LCRA)
D
E
F
G
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Arbitration"Sign in to search