The Supreme Court ruled that the High Court had violated the law by interfering with the arbitration award under Section 37 of the Arbitration and Conciliation Act, 1996. The District Court deemed this award acceptable under Section 34 of the same Act. Additionally, the High Court had made a mistake in ordering the restoration of the dealership to the first respondent.
Brief Facts of the Case:
A Civil Appeal is filed before the Supreme Court challenging the impugned order and judgement of the High Court. The High Court quashed the award of the Arbitrator and the Section 34 order of the Arbitration and Conciliation Act, 1996. The Court directed that the first respondent should be given back the dealership within three months, or they would have the right to claim compensation from Indian Oil Corporation and its officers.
Brief Background of the Case:
On October 31, 2003, the Indian Oil Corporation (hereinafter referred to as “IOC”) and the first Respondent entered into a petrol/HSD pump dealer agreement. The agreement was to be in force for 15 years and then continue for successive periods of five years each, with either party having the right to terminate the agreement by giving three months’ written notice.
The agreement provided that the IOC had the right to terminate the agreement earlier if the events mentioned in clause 56 of the agreement occurred. On September 25, 2006, the first respondent notified the second appellant that they wanted to withdraw from the R.O. dealership, requesting the second appellant to appoint new R.O. dealers within three months as per their agreement.
However, on November 22, 2006, the second appellant requested the first respondent to continue the operation until an alternative arrangement could be made. Later, on December 11, 2006, the first respondent sent a letter to the second appellant, requesting to take back the withdrawal from the dealership and apologize for the trouble caused.
Procedural History:
An arbitrator found that a Letter of Intent issued in favour of a new dealer was not flawed and passed an award in response to all other issues. However, the first respondent sought to dismiss the arbitration suit under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as “Act, 1996”). The suit was dismissed, and the first respondent appealed. The High Court set aside the award and the Section 34 order, directing that the first respondent restore the dealership within three months or be entitled to seek damages from IOC and its officers. Two appeals were filed, one by IOC and the other by the new dealer.
Contentions of the Appellants (Indian Oil Corporation):
The appellants argued that the High Court exceeded its authority by overturning the arbitration award. They contended that the first respondent wanted to end the contract and provided a notarized notice to that effect, which the second appellant accepted. The arbitrator found this a plausible view, and the District Judge found the award invulnerable. Therefore, even if a different perspective is possible, the High Court interfered illegally with the award. The appellants also argued that the arbitrator’s findings were not perverse and that the High Court acted beyond its power by setting aside the award and modifying it. They claimed that the direction to restore the dealership to the first respondent was palpably illegal.
Contentions of the Respondents:
The respondents argued that the first respondent's conduct and correspondence indicated that invoking clause (3) was a carefully thought-out decision and not coerced or influenced by any other factor. They referred to previous judgments by the Court to support this argument. They further contended that clause (3) of the agreement clearly indicated that the dealership would remain valid for 15 years, subject only to earlier termination as provided in clause 56. They further argued that termination within the first 15 years was impermissible under the contract and that the clause did not apply. The respondents claimed that the alleged acceptance of termination was unclear and that the High Court’s decision to interfere with the award was valid. They conceded that the High Court may have exceeded its authority in modifying the award under Section 36 of the Arbitration & Conciliation Act, 1996.
Observations of the Court:
The Supreme Court stated that the main point of contention was clause 3 of the agreement, which allowed either party to terminate the agreement by providing three months’ notice. Clause 3 explicitly did not require acceptance by the other party for the premature termination of the contract by giving three months’ notice. Instead, the clause allowed either party to initiate a premature termination of the contract by giving three months’ notice, resulting in the cancellation or revocation of the agreement and license.
The respondent invoked clause three by issuing a notice on September 25, 2006, requesting withdrawal from the dealership, and appointing new R.O. dealers within three months, in accordance with the agreement. The arbitrator determined that the notice was accepted based on the tone of the letter and the circumstances, although the words used in the letter could have been more specific. Clause 3 permitted either party to initiate a premature termination of the contract. As a result, the High Court exceeded its jurisdiction by interfering with the arbitrator’s finding.
The Court emphasised that the High Court’s assessment of the case was flawed. The High Court distinguished between “termination of the agreement” and “resignation from the dealership”. The High Court further decided that the Indian Contract Act, 1872, should be used because the agreement did not prohibit the respondent from withdrawing from the dealership. A merit review was conducted, and it was determined that the offer to “resign” was not accepted. The clause in question did not provide for resignation from the dealership, but the first respondent indicated that they were “withdrawing” from the dealership.
The Supreme Court held that acceptance was necessary, and the High Court, under Section 37 of the Act, 1996, acted illegally by interfering with the arbitrator's decision, which was acceptable to the district judge under Section 34. Furthermore, the High Court was wrong to restore the dealership to the first respondent and leave it open to them to claim damages after setting aside the award. It was clear that the Court could not modify the award after setting it aside and must leave the parties to work out their remedies, even if it justifiably interfered with the award.
The decision of the Court:
The Supreme Court quashed the impugned order and judgement of the High Court and restored the arbitration award.
Case Title: Indian Oil Corporation Ltd. & Ors. v M/s. Sathyanarayana Service Station & Anr.
Case No.: Civil Appeal No. 3533 of 2023
Citation: 2023 Latest Caselaw 457 SC
Coram: Hon’ble Mr. Justice K.M Joseph and Hon’ble Mrs. Justice B.V Nagarathna
Advocates for Petitioner: Mr. Nishanth Patil, AOR, Mr. Devadatt Kamat, Sr. Adv., Mr. Nishanth Patil, Adv., Mr. Ayush P Shah, Adv., Mr. Harsh Pandey, Adv., Mr. Revanta Solanki, Adv., Mr. Vikaram Mehta, Adv., Ms. Rashi Ram Pal, Adv. and Mr. Vikas Mehta, AOR
Advocates for Respondent: Mr. Shailesh Madiyal, AOR, Mr. Rajan Parmar, Adv., Mr. Vinayaka S Pandit, Adv., Ms. Rakhi M, Adv., Mr. Akshay Kumar, Adv. and Ms. Divija Mahajan, Adv.
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