Patel Nagar General Stores vs Hindustan Petroleum
1997 Latest Caselaw 139 Del

JUDGMENT

Anil Dev Singh, J.

(1) This is a petition under section 30 and 33 of the Arbitration Act, 1940, for setting aside the award rendered by the sole arbitrator Shri Ravinder Dhir dated July 21, 1993. The petitioner was carrying on the business of supplying liquified petroleum gas (for short 'L.P.G.')to consumers. This business was being conducted by the petitioner pursuant to an agreement dated August 1, 1986 between the respondent Hindustan Petroleum Corporation Limited and the erstwhile proprietor of the petitioner. On April 30, 1991 a show cause notice was issued to the petitioner by the respondent wherein it was pointed out that the officers of the respondent discovered on inspection a number of malpractices being indulged in by the petitioner in a regular and systematic manner including issue of extra cylinders over and above the double bottle connections to 119 consumers and misuse of 27 vouchers of the Transfer Voucher Book. The notice called upon the petitioner to show cause within Fifteen days from the receipt thereof as to why appropriate action should not be taken against it for violating the terms and conditions of the dealership agreement dated August 1, 1986 with particular reference to Clauses Ii, 23(a), 27(a), (h), (i) and (n) thereof. In response to the show-cause notice, the petitioner by its letter dated May 15, 1991, while rendering its explanation, inter alia stated that it was taking immediate corrective action in regard' to the irregularities and expressed its regret for the same. it was further averred that the irregularities had occurred as a result of inadequate maintenance of record/date, lack of managerial control, and destruction of documents in a Fire incident, etc. The respondent apparently not being satisfied with the reply of the petitioner terminated the above said dealership agreement dated August 1, 1986 under clauses 23(a) and (b), 27(h), (i) and (n) thereof by its letter dated June 20, 1991. The petitioner was also directed to immediately hand over to the respondent or any person nominated by it the entire stock of L.P.G. Filled/empty cylinders/equipments and regulators that had been made available and entrusted to the petitioner during the currency of the agreement. The termination letter further stated that as per clause 31(c) of the dealership agreement dated August 1, 1986, the petitioner was liable to account for all the L.P.G. Filled/empty cylinders/equipments and regulators and all deposits and other amounts payable in respect thereof to the Corporation. The petitioner was also required to pay to the Corporation the amounts due and payable by it.

(2) The petitioner feeling aggrieved by the termination letter Filed a suit, being Suit No. 1849/91, for permanent injunction. The respondent in that suit Filed an application under section 34 of the Arbitration Act praying inter alia that since there was an arbitration agreement between the parties the suit was liable to be stayed.

(3) In view of the stand taken by the respondent the petitioner withdrew the suit on August 27, 1992 and requested the respondent to appoint an arbitrator in terms of clause 37 of the agreement dated August 1, 1986. Thereupon, on September 22, 1992 the Chairman of the respondent appointed its General Manager, Shri Ravinder Dhir as the sole arbitrator in the matter. The arbitrator rendered and published his award on July 21, 1993. The operative part of the award reads as under:- "1.I award that the termination of the dealership agreement dated August 1, 1986 by the respondent is legal and valid. 2. I award that the Respondent is entitled to receive 588 Lpg cylinders from the Claimant. I, therefore, direct the Claimant to hand over 588 Lpg Cylinders to the Respondent within 30 (thirty) days from the date of this award failing which the Claimant shall pay to the Respondent a sum of Rs. 8,82,000.00 (Rs. Eight lacs eighty-two thousand only) towards the cost of the same calculated at the rate of Rs.l,500.00 per cylinder with interest there on at 18% per annum from date of expiry of 30 days of the award till the date of payment and in the case of the failure on the part of the Claimant to return any portion or part of the cylinders above mentioned, to pay to the Respondents such a sum of money calculated @ Rs, 1.500.00 per cylinder on the cylinders which have not been returned and handed over, along with interest thereon @ 18% per annum calculated as aforesaid; 3. I award that the Claimant is liable to hand over peaceful possession of the Lpg godown which was handed over to the Claimants as part of the Lpg dealership agreement dated 1.8.86, but belonging to the Respondent Corporation within 15 (fifteen) days from the date of this award. 4. I award that the Respondent is entitled to receive the sum of Rs. 3,610.00 (Rs. three thousand six hundred ten) only towards the rent for the godown premises paid by them to Dda for the period 1991-92 and accordingly the Claimant shall pay the sum of Rs. 3,610.00 (Rsi three thousand six hundred ten), only to the Respondents within 30 (thirty) days from the date of this award with interest there on at 18% per annum from the date of expiry of 30 days of the award till. the date of payment. 5. The Respondent is entitled to retain and adjust the sum of Rs. 25,000.00 remaining with them on account of security deposit from the Claimants, towards the amounts payable by the Claimants. Accordingly, the Claimants shall be entitled to deduct this amount from out of the amounts payable by them under item 2 and 4 above. 6. The other monetary claims of the Respondents enumerated under para 5 of Part Iii of their counter claims are rejected. 7. The claim of the Claimant for restoration of the dealership is rejected. 8. The Claimant is entitled to payment of Rs. 3,610.00 being the amount of godown rent paid by them to DDA. The Claimant shall however be entitled to deduct this amount from out of the amounts payable by them under item 2 and 4 above."

(4) The petitioner not being satisfied with the award has filed the instant application under sections 30 and 33 of the Arbitration Act. Learned counsel appearing for the petitioner submitted that the award of the arbitrator up-holding termination of the dealership of the petitioner was bad in law as the petitioner did not violate any of the terms of the agency agreement dated August 1, 1986. He further submitted that the arbitrator failed to consider that the respondent violated the Uniform Marketing Discipline Guidelines adopted by the consortium of the oil companies in terminating the agency of the petitioner. Learned counsel also contended that since 1964, when the petitioner started the supply of L.P.G. to its customers, till 1991 there was no complaint against the petitioner and the so called malpractices indicated in the show cause notice would have merely required a warning to the petitioner under the Uniform Marketing Discipline Guidelines. Besides, it was pointed out by the learned counsel that the complaints against the partners of the petitioner under the Essential Commodities Act, 1955, for allegedly violating the provisions thereof have ended in their discharge subsequent to the rendering of the award by the arbitrator.

(5) I have considered the submissions of the learned counsel for the petitioner. I have also gone through the award of the arbitrator but I have been able to find any legitimate ground to accede to the request of the petitioner for setting aside the same. The arbitrator rendered the award after carefully examining the respective stands of the parties. It will, therefore, be necessary to examine the respective stands of the parties, and what was averred and proved by them before the Arbitrator.

(6) The allegations against the petitioner as reflected from the show cause notice amongst others are : (1) the petitioner issued extra cylinders over and above the double bottle connections to 119 consumers, and (2) misused 27 vouchers of the transfer voucher book.

 (7) In reply to the show cause notice, besides rendering its explanation the petitioner also expressed its regret for inadequate maintenance of records/date and lack of managerial control. At this stage it will be necessary to set out the relevant part of the reply of the petitioner:-    "...The computerization of records was bound to reveal certain irregularities as has been found to be the case now which unfortunately has resulted in a show cause notice. .... we ourselves would like to take immediate corrective action in the irregularities noticed. At the same time we would like to point out that all the so called irregularities have occurred as a result of the inadequate maintenance of records/data as a system and not intentionally. While we would not like to mention this as a defense, the possibility of certain customers having taken advantage of the system can not be ruled out. Xx Xx Xx Xx We regret the irregularities arisen due to lack of managerial control, lack of supporting documents because of fire and other relevant factors..... "  

 Thus, it is apparent that in the reply the petitioner admitted that irregularities had arisen due to lack of managerial control, lack of documents which were destroyed in a fire incident, etc. Again before the Arbitrator the petitioner submitted that out of a total of 588 cylinders claimed by the respondent 98 cylinders had been retrieved by it. As noted by the arbitrator in the award, the petitioner accepted its lapses, and tendered its apology. It pleaded that a lenient view of the matter be taken and the dealership be restored. Now turning to the respondent's case pleaded before the arbitrator in its reply/counter-claim. The respondent narrating the brief history of the case stated that it had noticed several malpractices with regard to the operation and working of the dealership of the petitioner at many occasions and such malpractices included issuance and termination vouchers for L.P.G. connections in fake names; unauthorised release of L.P.G. cylinders; manipulation of customer record by showing that Double Bottle Connections had been issued without physical release of the cylinders; issuance of more than one additional cylinder; unauthorised issuance of TVs without reporting the same in the weekly reports; forgery and tampering of records, etc. The respondent further pleaded that upon review of 119 identified cases, the claimant had retrieved only 19 cylinders. In this regard it was also pointed out as follows:-    "(A)The particulars of 12 transfer vouchers pertaining to 12 cylinders retrieved, did not tally with any of the 119 cases, and out of these 12 cases, consumer No. 678883 had been issued a transfer voucher No. 163406 on December 20, 1990 and again another T.V. No. 163447 on January 16, 1991 there by making two T.Vs. against one consumer; (b) Personal contacts made by respondent's representative with 36 consumers out of the aforesaid 90 cases revealed that none of them was released with any double bottle connection and there was no chance of retrieving the same from these claims; (c) Against consumer No. 525149 the claimant had issued Tv No. 163446 on January 16, 1991 and Tv No. 163470 on February 13, 1991 thereby issuing two TVs against one consumer; (d) Another set of 26 consumers out of 119 cases from whom the petitioner had not retrieved cylinders were contacted by the respondent's representative when it was revealed that at no point of time they had ever approached the petitioner for double bottle connection, and they 'did not receive any double bottle connection; (e) 44 consumers filed complaints with the local police that the petitioner had cheated them by issuing double bottle connections having been issued against their subscription vouchers and without any physical installation or grant of cylinders at their residences; (f) About 27 persons who had received connections at Ludhiana against TVs issued from the Tv Book, some of them were drawing supplies at New Delhi ever after the date of issue of T.V., and one of the consumers to whom T.V. No. 165049 dated March 7, 1990 was issued had already been issued a T.V. about four years ago."  

The respondent, in the circumstances, inter alia prayed for an award against the petitioner for a sum of Rs. 9,30,640.00 as the amount of losses and expenses incurred by it on account of the breaches and violations of the dealership agreement along with interest at the rate of 18% per annum. The respondent-corporation examined Mr. M.K. Vij, Deputy Manager, Lpg, Delhi Regional Office, in support of its stand. The petitioner, however, did not crossexaminer the witness. It is in view of the above said submissions and evidence on record that the arbitrator rendered his award. In the above said background I do not Find that the view taken by the arbitrator suffers from any illegality much less an illegality apparent on the face of.the award. The power to terminate the agreement was undoubtedly available with the Corporation under clauses 27 and 28 of the agreement. As already seen, the petitioner admitting the lapses tendered its apology. This by itself would have been sufficient to debar the petitioner from challenging the award. In any case, the agreement was to remain in force for ten years commencing from August 1, 1986 and at any stage it could be revoked by either of the parties by giving one month's notice in writing to the other of its intention to terminate the same. At this stage, the decision of the Supreme Court in Indian Oil Corporation Ltd. v. Amritsar Gas Service and others, , needs to be noticed. In that case the Supreme Court modified the award of the arbitrator, who had granted to a dealer of the petitioner relief of restoration of dealership of L.P.G. on the ground that the termination thereof by the petitioner was not validly made under clause 27 of the agreement .by and between them, by directing compensation to be paid to the dealer instead of restoration of the dealership. The Supreme Court was of the opinion that since the agreement could also be revoked by either party under clause 28 thereof, the only relief which the arbitrator could grant was compensation for the notice period mentioned therein. It may be noticed that in that case the question before the Supreme Court, inter alia, was concerning the relief which could be granted by the arbitrator in view of its finding that the distributorship agreement was not validly terminated under clause 27 of that agreement. It is not in dispute that both clauses 27 and 28 of that agreement are in pari materia with clauses 27 and 28 of the instant agreement. In this regard the Supreme Court observed as follows:- "The question now is of the relief which could be granted by the arbitrator on its finding that termination of the distributorship was not validly made under clause 27 of the agreement. No doubt, the notice of termination of distributorship dated March Ii, 1983 specified the several acts of the distributor on which the termination was based and there were complaints to that effect made against the distributor which had the effect of prejudicing the reputation of the appellant-corporation; and such acts would permit exercise of the right of termination of distributorship under clause 27. However, the arbitrator having held that clause 27 was not available to the appellant-corporation, the question of grant of relief on that finding has to proceed on that basis. In such a situation the agreement being revocable by either .party in accordance with clause 27 by giving 30 days' notice, the only relief which could be granted was the award of compensation for the priod of notice, that is, 30 days. The plaintiff-respondent first is, therefore, entitled to compensation being the loss of earnings for the notice period of 30 days instead of restoration of the distributorship. The award has, therefore, to be modified accordingly. The compensation for 30 days notice period from March Ii, 1983 is to be calculated on the basis of earnings during that period disclosed from the records of the Indian Oil Corporation Ltd."

Therefore, it is clear that even in a case where the termination of dealership agreement is not validly made relief by way of restoration of dealership cannot be granted. Under clause 28 of the agreement the dealership agreement could be terminated by giving thirty days notice or by payment of compensation in lieu of the notice period. In the instant case, however, there is no reason to modify the award as the finding of the arbitrator that termination of dealership has been properly made under clause 27 of the agreement cannot be faulted as the petitioner has not been able to show as to how the award was bad in law. The petitioner also failed in its attempt to make good its submission that it did not violate any of the terms of the agency agreement dated August 1, 1986. The arbitrator has found violation of the dealership agreement by the petitioner on the basis of the material on record. Sufficiency and adequacy of evidence is not a matter on which the award of the arbitrator can be challenged. It is important to note that the petitioner did not even cross-examine the witness produced by the respondent. Thus the petitioner did not question the evidence adduced by the respondent. That apart, the petitioner tendered apology for irregularities noted by the respondent during inspection. In these circumstances, therefore, it is difficult to hold that the award is invalid. The fact that complaints against the petitioner for violation of the provisions of the Essential Commodities Act, 1955, ended in the discharge of the partners of the petitioner firm subsequent to the rendering of the award by the arbitrator, is of no consequence and does not affect the validity of the award. The further plea of the petitioner that the respondent violated the Uniform Marketing Discipline Guidelines is also of no avail to it: Firstly, there is nothing to show that the Uniform Marketing Discipline Guidelines were pressed into service before the Arbitrator, and secondly, the Uniform Marketing Discipline Guidelines cannot take precedent over the agreement between the parties. Thirdly, even the Uniform Marketing Discipline Guidelines were not produced before me. For the foregoing reasons the application of the petitioner being O.M.P. No. 122/93 under sections 30 and 33 of the Arbitration Act containing objections of the petitioner to the award is dismissed and the award is made rule of the court. A decree in terms of the award is hereby passed. The award would form part of the decree. I.A. No. 7620/93 seeking stay of operation of the award also stands dismissed.