Madan Kumar Saha vs Indian Oil Corporation Limited
2021 Latest Caselaw 359 Cal/2

                     IN THE HIGH COURT AT CALCUTTA
                      Ordinary Original Civil Jurisdiction
                               ORIGINAL SIDE


Present:
The Hon'ble JUSTICE MOUSHUMI BHATTACHARYA


                               A.P. 547 of 2008

                             Madan Kumar Saha
                                      Vs.
                       Indian Oil Corporation Limited



For the Petitioner               :    Mr. Dhruba Ghosh, Sr. Adv.
                                      Mr. Javed K. Sanwarwala, Adv.
                                      Mr. Pradeep Kumar, Adv.
                                      Mr. S. Dasgupta, Adv.
                                      Ms. Madhurima Halder, Adv.


For the Respondent              :     Mr. Amit Kumar Nag, Adv.
                                      Mr. Swarajit Dey, Adv.




Last Heard on                   :     25.03.2021.



Delivered on                     :    07.04.2021.



Moushumi Bhattacharya, J.

1. This is an application under Section 34 of The Arbitration and

Conciliation Act, 1996 for setting aside of an Award dated 10th July, 2008

passed by a learned Sole Arbitrator before whom the respondent before this

court was the claimant in the arbitration proceedings.

2. The respondent/Indian Oil Corporation Limited (IOCL) filed its

Statement of Claim in the arbitration for damages incurred pursuant to

termination of the dealership of the petitioner. The dispute between the

parties arose out of a Memorandum of Agreement dated 2nd April, 1976 in

connection with a dealership of a retail outlet at Howrah on the basis of

which the petitioner undertook to run a petrol pump in the name of M/s

Kalpana Service Station. The parties entered into a formal contract on 17th

June, 1977. The contention of the petitioner is that the respondent intended

at all material times that the dealers would induct a financial working

partner, if required and the petitioner accordingly inducted one Mr. Saidur

Rahman Khan for rendering necessary financial assistance. Mr. Khan

subsequently withdrew himself from the affairs of the petrol pump and the

petitioner requested the respondent to induct Mr. Khan as a financial

partner as per the respondent's Circular of 28th July, 1983. The petitioner's

case is that the respondent assured the petitioner that the petitioner would

be allowed to run the business with the help of a financial partner on the

basis of which the petitioner executed a general Power of Attorney in favour

of Mr. Khan. The petitioner's case is that the petitioner continued to run the

petrol pump as its sole owner and did not part with the rights of the service

station in favour of any third party. According to the petitioner, despite

being aware of the arrangement between the petitioner and Mr. Khan, the

respondent initiated a Vigilance Inquiry in 1993 followed by a Show-Cause

Notice issued on 17th July, 1997 on the petitioner for conducting operations

of the petrol pump contrary to the terms of the contract. The petitioner filed

an application in the arbitration for examining one Mr. G. C. Roy, an

Attorney of the respondent in relation to the Vigilance Report. The case of

the petitioner is that although Mr. G. C. Roy admitted to the existence of the

Vigilance Report, the said report was not produced by the respondent in the

arbitration.

3. The primary contention of Mr. Dhruba Ghosh, learned Senior Counsel

appearing for the petitioner, is that the Arbitrator based his findings on the

Vigilance Report which was not produced by IOCL and that if produced, the

Vigilance Report would show that IOCL/respondent had full knowledge of

the manner in which the petrol pump was being run since 1991. Counsel

submits that the Award is liable to be set aside as being contrary to public

policy and is perverse. Counsel submits that since the respondent was in

possession of the Vigilance Report and deliberately chose not to disclose the

same, the Arbitrator should have drawn adverse inference against the

respondent. It is further submitted that the Award is based on conjecture

and surmise by reason of the finding of the Arbitrator being premised on the

word "perhaps". Counsel also assails the Award as being devoid of reasons.

Counsel submits that it was the respondent's specific case in the Statement

of Claim that the petitioner had committed breach of the agreement by

entering into partnership with Mr. Khan without obtaining the respondent's

approval and that the petitioner had also transferred his shares in the

business to Mr. Khan. Counsel submits that the draft Deed of Partnership

between the petitioner and Mr. Khan dated 1st November, 1990 has nothing

to do with the dealership and further that the respondent was aware of the

arrangement between the petitioner and Mr. Khan since 1991.

4. Mr. Swarajit Dey, learned counsel appearing for the respondent seeks

to sustain the impugned Award by contending that the petitioner admittedly

failed to obtain prior written approval from IOCL before entering into the

Partnership Deed with Saidur Rahman Khan which was in breach of the

terms of the contract. Counsel submits that the respondent/IOCL did not

have knowledge of the induction of Mr. Khan, which would be evident from

the fact that the petitioner had not sent any notice of the same to the

respondent and further that there is no document on record to show that

the respondent had knowledge of the fact of induction of Mr. Khan prior to

20th March, 1997. Counsel submits that the respondent received the

concerned letter only in March 1997 and immediately took steps for issuing

the Show-Cause Notice on 17th July, 1997. Counsel accordingly submits

that there was no waiver on the part of IOCL since the petitioner has not

proved the fact that the respondent had knowledge of the induction of Mr.

Khan. Counsel additionally submits that no adverse inference should have

been drawn against the respondent for not producing the Vigilance Report

since there was no notice to produce the Vigilance Report and consequently

no direction on the respondent in relation thereto. Counsel submits that the

Award should not be interfered with on the factual aspect and further that

since the contract was determinable in nature, the Arbitrator could not have

passed any order for specific performance of the contract.

5. The primary ground of challenge for setting aside the impugned Award

is that the Award is perverse. The ground of perversity is based on the fact

that the learned Arbitrator based his findings on a document that had not

been brought on record by the respondent/ IOCL, namely the Vigilance

Inquiry Report. The other ground of challenge is that the Award is based on

surmise and conjecture since the Arbitrator has prefaced his finding on the

termination of the dealership by the respondent/IOCL with the word

"perhaps".

6. The above grounds of challenge have to be tested against the findings

of the Arbitrator. The first ground, namely, that the Award is perverse is

based on the presumption that (a) the entire Award is based on the Vigilance

Report and (b) that the Vigilance Report was the only essential document

which decided the issue of termination of the petitioner's dealership by the

respondent.

7. The dispute arose between the petitioner (respondent in the

Arbitration) and the respondent, IOCL (claimant before the arbitrator) from

cancellation of a dealership of a Service Station- M/s Kalpana Service

Station- by the respondent on the apparent breach of the terms and

conditions of the Agreement by the petitioner. The respondent awarded the

dealership of the Pump to the petitioner with effect from 02.04.1976. In

November, 1991 the petitioner sought permission from IOCL to induct

Saidur Rahman Khan as a financial partner to which by a letter of January,

1992, IOCL instructed the petitioner not to reconstitute the business

without first obtaining IOCL's approval. A Partnership Deed was entered into

between the petitioner and Mr. Khan on 1st November, 1990, which

according to IOCL was in breach of the petitioner's obligation not to enter

into any arrangement with regard to the Service Station. IOCL issued a

show-cause on the petitioner on 17th July, 1997 and the Dealership

Agreement was terminated on 28th March, 2000. The petitioner was directed

to hand over vacant possession of the retail outlet together with the assets

and properties of IOCL. IOCL claimed possession of the retail outlet and

damages of Rs. 5,000/- per day from 01.04.2000 until delivery of possession

together with other expenses of Rs. 3,00,000/-. According to the petitioner,

IOCL had full knowledge and had given approval to the induction of Mr.

Khan as a financial partner. The petitioner also claims that since Mr. Khan

made further investments in the business, a General Power of Attorney was

executed by the petitioner in the name of Mr. Khan which however was not

given effect to. It is also contended that the Partnership Deed dated

01.11.1990 executed between the petitioner and Mr. Khan was based on the

assurances given by the officers of IOCL, but which was also finally not

given effect to. The petitioner claims that these facts were stated by the

petitioner in the Vigilance Inquiry conducted by the Vigilance Officer of

IOCL.

8. The impugned Award contains detailed references to the facts, which

culminated in the reference of the disputes to Arbitration. The "Conclusions"

of the Arbitrator followed the recordings of the factual position between the

parties. After taking into account the relevant facts the Arbitrator concluded

that IOCL did not have knowledge of the induction of Mr. Khan. The reason

given for this finding is that there was no document on record to prove the

involvement of IOCL in the induction of Mr. Khan. The Arbitrator has also

come to the finding that Mr. Khan was inducted in the affairs of the

dealership prior to permission being sought from IOCL which was in clear

breach of the terms of the Dealership Agreement executed between the

petitioner and IOCL. It is also noted that although the petitioner was given

time in February, 1998 to rectify the breaches committed by it, the

petitioner approached the National Commission for the SCs and STs after

which the dealership was terminated on 28th March, 2000. The Arbitrator

found that the claim of IOCL was not defeated by delay since IOCL had given

the petitioner time to rectify the breach.

9. The question which therefore falls for consideration is whether the

Arbitrator has wholly based his decision to answer the abovementioned two

issues framed by the Arbitrator in favour of the respondent IOCL on the

Vigilance Inquiry Report.

10. For ease of reference the reasons in the judgment are divided under

two headings.

(i) That the Vigilance Report was the only essential document which

decided the issue of termination of the petitioner's dealership by the

respondent.

The first two issues were concerned with whether IOCL was entitled

to cancel the dealership, whether it was aware of the actions taken by the

petitioner and whether the claim of IOCL could be defeated on the ground of

delay. This question was decided with reference to the first two issues

framed by the learned Arbitrator. From a perusal of the reasons given by the

Arbitrator in arriving at the conclusion that IOCL was entitled to cancel the

dealership and was not aware of the induction of Mr. Khan makes it clear

that the Arbitrator did not base his findings solely on the Vigilance Inquiry

Report. It is also important to note that the case of the petitioner before this

Court is that there has been waiver on the part of IOCL with regard to

induction of Mr. Khan in the dealership business. Counsel has sought to

deal with the issue of breach of the Agreement regarding the alleged waiver

on the part of IOCL namely that IOCL was all along aware of the involvement

of Mr. Khan in the business but chose to issue the show-cause notice and

terminate the Agreement despite such knowledge. It should be stated in this

context that the argument of waiver presumes that IOCL was aware or had

knowledge of the induction of Mr. Khan. The Arbitrator has recorded a clear

finding that there was no document on record to show that IOCL was

involved in any assurance which may have prompted the petitioner to

execute the documents in favour of a third party. The fact that IOCL came

to learn of the induction on 20th March, 1997 has not been dislodged by any

factual evidence relied upon by the petitioner. Since the conclusions of the

Arbitrator is based on other factual findings, namely the correspondence

between the parties and the significance of the dates on which documents

were executed by the petitioner, it cannot be said that the Vigilance Inquiry

was the only reason for the Arbitrator to justify the termination of the

Dealership Agreement. The argument of the petitioner before this Court on

this contention is hence rejected.

(ii) The Award is based on conjecture and surmise.

The part of the Award which has been assailed by the petitioner on the above ground is reproduced below:-

"It also appears that perhaps, the dealership was terminated after a Vigilance Enquiry

finding of dealership being operated as 'benami'. There is nothing in law or contract between

the parties that takes away the right of the Corporation in exercising a right vested in it,

because it chooses to allow some time or a second chance to the party in breach to rectify its

faults. Therefore, the claim of the Claimant is not defeated by delays. This issue is

accordingly decided in favour of the Claimant and against the Respondent".

According to the petitioner, the Vigilance Inquiry Report was not

brought on record or proved by IOCL in the Arbitration proceedings despite

the petitioner contending that the Vigilance Report would show that IOCL

had full knowledge of the manner in which the Petrol Pump had been run

since 1991. The petitioner's case is that since the Vigilance Report was not

part of the record, the Arbitrator based his Award on an absence of evidence

rendering the Award perverse. The petitioner has also argued that the

Arbitrator should have drawn adverse inference against the respondent for

not discussing the Vigilance Report. The aforesaid contentions of the

petitioner have to be decided on whether the Vigilance Report was the only

document on which the Arbitrator held that the termination of the

Agreement was valid. This Court has already negated such contention in the

earlier part of this judgment.

The other issue which however remains to be decided is whether the

Award shows that the petitioner had sought for production of the Vigilance

Report by way of an application or otherwise. This Court has carefully

considered the Award from which it is evident that there is no recording in

the Award which would show that the petitioner made an application for

production of the Vigilance Report or that IOCL refused to produce the said

Report despite such request/application. This Court is of the view that

adverse inference against the respondent/IOCL based on non-production of

the Vigilance Report would only arise if IOCL refused to produce the same

despite an application made by the requesting party or in defiance of a

direction of the Arbitrator. Question No. 85 of the cross-examination relied

on by the petitioner does not show that IOCL refused to produce the Inquiry

Report. In fact, the answer of the respondent's witness is that despite,

Vigilance Report being a confidential document, IOCL may produce it upon a

direction of the Arbitrator. Hence, from a conjoint reading of the Award as

well as the evidence relied on by the petitioner, it cannot be stated that the

Arbitrator should have drawn an adverse inference on IOCL for non-

production of the Vigilance Report.

Use of the word "perhaps" in the context of the sentence further

indicates that the Vigilance Inquiry Report may have been an additional

reason for IOCL to terminate the Agreement (underlined for emphasis).

Hence the ground taken by the petitioner of the Award being based on

surmise and conjecture is not acceptable and is rejected.

11. The cases relied on by the petitioner on the law of perversity namely

Associate Builders vs Delhi Development Authority; (2015) 3 SCC 49 proceeds

on the fact that the Arbitrator either ignored vital evidence or came to a

finding without any evidence. Since it has already been held that the

Vigilance Report did not form the only basis of the Arbitrator's finding on the

validity of the termination, this decision cannot be of any assistance to the

petitioner. Ajay Kumar D. Amin vs Air France; (2016) 12 SCC 566, Union of

India vs Sugauli Sugarworks (P) Ltd.; (1976) 3 SCC 32 and Sathyanarayana

Brothers (P) Ltd. vs Tamilnadu Water Supply and Drainage Board; (2004) 5

SCC 314 are decisions in which the courts should have drawn adverse

inference on a vital piece of evidence and found that an Award would be

vitiated if relevant documents are ignored. In Ajay Kumar D. Amin and

Sugauli Sugarworks important documents were suppressed by the parties

and witnesses were not examined for proving vital facts which is unlike the

present case where no application was made on IOCL to produce the

Vigilance Report. In Ajay Kumar D. Amin, the Supreme Court held that

failure of a party to produce a document which should have been produced

despite a direction for such coupled with failure to explain such non-

production raises a presumption that the contents were unfavourable to the

party. An adverse inference should hence be drawn against the said party.

There is also nothing on record in the present case to show that despite an

application made for production of the Report or an order of the learned

Arbitrator to that effect, IOCL refused to disclose the same.

12. On the other hand in Associate Builders vs Delhi Development

Authority the Supreme Court has cautioned that a Section 34 Court does

not sit in Appeal over an Award for reassessing the evidence. Dyna

Technologies Pvt. Ltd. vs Crompton Greaves Ltd; (2019) SCC Online SC 1656

is on the same vein where the Supreme Court held that an Award should

not be interfered with merely because an alternative view on facts or

interpretation of the contract is possible and further that a Court should

defer to the view taken by the Arbitrator unless the reasoning is found to be

perverse. Since this Court is of the view that the Award contains sufficient

and clear reasons for coming to the conclusions and that a definite and

intelligible link exists between the factual findings and the conclusions, the

Award must be sustained. This Court does not find any reason to interfere

with the Award under the grounds available under Section 34 of the 1996

Act and much less on the grounds taken in the present application for

setting aside of the impugned Award.

13. In view of the above A.P No. 547 of 2008 is dismissed without any

order as to costs.

Urgent Photostat certified copy of this Judgment, if applied for, be

supplied to the parties upon compliance of all requisite formalities.

(MOUSHUMI BHATTACHARYA, J.)