Madras High Court
M/S.Raju And Sons vs The Deputy General Manager on 24 March, 2022
Arb O.P.(Com. Div.)No.135 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 24.03.2022
Coram
THE HONOURABLE MR. JUSTICE M.SUNDAR
Arb O.P.(Com. Div.)No.135 of 2022
M/s.Raju and Sons
Rep. by its Proprietor
Ramesh Raju ... Petitioner
vs.
1. The Deputy General Manager
(Retail Sales)
Salem Divisional Office
Marketing Division,
The Indian Oil Corporation
No.234, 1st Floor, NH-7
Salem Bangalore Bye Pass Road,
Kondalampatti
Salem - 636 010.
2. The Indian Oil Corporation
Having its Regional Office
No.139, Nungambakkam High Road,
Chennai-600 034.
Rep. by its Chief Divisional Retail Sales Manager ... Respondents
Prayer:
Arbitration Original Petition filed under Section 34(2)(b) and 2A of
the Arbitration and Conciliation Act, 1996 praying, to
1/20
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(a) set aside the arbitral award dated 12.03.2021 bearing
No.A.F.No.190/2019/MHCAC/HCT.Ms made in Claim Petition
No.190/2019 passed by the sole arbitrator in its entirety;
(b) to direct the respondents to pay the costs to the petitioner;
For petitioner : Mr.S.Sudharshan
ORDER
Captioned 'Arbitration Original Petition' [hereinafter 'Arb OP' for the
sake of convenience and clarity] has been presented in this Court on
27.10.2021 assailing an 'arbitral award dated 12.03.2021 bearing reference
No.A.F.No.190/2019/MHCAC/HCT.Ms' [hereinafter 'impugned award' for
the sake of convenience and clarity] made by an 'Arbitral Tribunal'
[hereinafter 'AT' for the sake of convenience and clarity] constituted by a sole
Arbitrator.
2. The arbitrable lis arises out of a 'dealership agreement dated
28.12.2016' [hereinafter 'primary contract' for the sake of convenience and
clarity] between Indian Oil Corporation [IOC] and petitioner [dealer].
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3. The primary contract is for retail vending of petrol, high speed
diesel, motor oil, grease etc., in Kadamadai Village, Palacode Taluk,
Dharmapuri District, Tamil Nadu.
4. Primary contract is for a period of 15 years from 30th June 2016 and
thereafter it was to continue for successive periods of one year if it is not
determined by either party.
5. Whilst primary contract was operating, IOC conducted an inspection
and observed that there was positive stock variations beyond permissible
limits (2896 Litres). Therefore, IOC issued a 'show cause notice dated
15.12.2018' ['SCN'], petitioner in the captioned Arb OP [hereinafter 'dealer'
(as already alluded to supra) for the sake of convenience and clarity] sent a
belated reply citing his marriage as reason for delay in responding/replying
(to be noted, the dealer is as individual, who is carrying on business as a sole
proprietor in the name and style of Raju and Sons). It is also to be noted that
there is a document captioned 'MARKETING DISCIPLINE GUIDELINES'
['MDG'] and this MDG also is applicable qua primary contract.
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6. Not satisfied with the dealer's reply to SCN, IOC issued a
termination letter dated 06.03.2019 bearing reference No.SLM/DPR/RAJU
terminating the dealership and sealing the nozzles in the retail outlet. This
led to arbitrable disputes. Sole Arbitrator (a former judicial officer in the
District Judiciary) was appointed by this High Court. The dealer filed a
claim petition inter alia with a primary prayer to declare the termination
letter dated 06.03.2019 as illegal/invalid in law and to de-seal the retail
outlet. IOC completed pleadings before AT inter alia by contending that the
aforementioned positive variation detected in inspection is abnormal, it has
neither been disputed nor been properly explained and this has led to critical
irregularity of unauthorised purchase/sales of products. This being a critical
irregularity, it clearly affects the service of IOC to public and consumers of
essential commodities is further stand of IOC.
7. AT on the aforementioned rival pleadings framed five issues and
they are as follows:
'1. Whether there was any MS positive stock variation
beyond permissible limits by 2896 Litres?
2. Whether there was any breach of terms of Dealership
Agreement on the part of the claimant?
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3. Whether the termination letter issued by the Respondent
Corporation in Ref.No.SLM/DPR/RAJU dated 06.03.2019 is liable
to be declared as illegal and consequently be set aside?
4. Whether the claimant is entitled to sell the available stock
of MS (petrol) and HSD (High Speed Diesel) products available in
his storage tanks by de sealing the QRC holograms No.24944 &
24945 and be allowed to continue the operation of the retail outlet
of the claimants?
5. To what other reliefs the claimant is entitled? '
8. There was no oral evidence before AT but there was documentary
evidence. Ex.P1 to Ex.P3 were marked on the side of claimant [dealer] and
Ex.R1 to Ex.R11 were marked on the side of respondents [IOC]. After full
contest, AT made the impugned award inter alia dismissing the prayer to
declare the termination letter as illegal and invalid in law. As regards the
prayer for de-sealing and permitting the dealer to continue the sale, AT
directed IOC to settle the balance, if anything remains after adjusting the
accounts.
9. In his campaign against the impugned award, notwithstanding very
many averments in the petition and grounds set out in the petition,
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Mr.S.Sudharshan, learned counsel for petitioner/dealer made the following
submissions:
(a) The termination is clearly disproportionate and contrary
to MDG as this is classified (under 8.3) as a Major irregularity
vide 5.1.11 and at the first instance there can only be suspension
of sales and supplies for 15 days and termination, if any, can only
be at the third instance;
(b) There is nothing to demonstrate unauthorised fuel
purchase or sale;
10. This Section 34 Court carefully considered the points that were
urged in the petitioner's campaign against the impugned award i.e., points
urged in the hearing notwithstanding very many averments and several
grounds raised in the petition.
11. Before setting out the discussion and dispositive reasoning, this
Court reminds itself that Section 34 of A and C Act is neither an appeal nor a
revision. It is not even a full-fledged judicial review. It is a mere challenge to
an arbitral award within the limited legal perimeter of Section 34 of A and C
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Arb O.P.(Com. Div.)No.135 of 2022
Act. It is a one issue summary procedure. This principle was laid down by
Hon'ble Supreme Court in oft-quoted Fiza Developers case law [Fiza
Developers and Inter-Trade Private Limited Vs. AMCI (India) Private
Limited reported in (2009) 17 SCC 796]. To be noted, Fiza Developers
principle has been reiterated by Hon'ble Supreme Court in Emkay Global
case [Emkay Global Financial Services Ltd. v. Girdhar Sondhi reported in
(2018) 9 SCC 49] as a step in the right direction. Hon'ble Supreme Court has
also explained that the 'one issue' summary procedure does not mean that a
Section 34 legal drill should turn only on a lone issue and it only means that
arbitral award being put to challenge itself is the issue and that would be the
one issue before Section 34 Court. It is in this view of the matter, in Fiza
Developers principle it was held that Section 34 legal drill is a one issue
summary procedure. As already alluded to supra, Fiza Developers principle
was held to be a step to right direction in Emkay Global case.
12. This Court has also repeatedly held that under Section 34 of A and
C Act, what has to be tested is whether the challenge fits snugly into one or
the other pigeon hole/s adumbrated in various sub-sections of Section 34 or a
case of breach of any other specific provision of A and C Act. If the answer
is in the affirmative, the impugned award will be interfered with and
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Arb O.P.(Com. Div.)No.135 of 2022
dislodged. It is axiomatic that if the answer is in the negative, the petitioner's
campaign will end.
13. This Court now proceeds to consider the aforementioned two main
points urged by learned counsel for petitioner. Though not specifically
urged, even if MDG is construed as part of primary contract, it can at best fit
into a case of breach of Section 28(3) of A and C Act. On Section 28(3) of A
and C Act, on a demurer, even if it is assumed that termination at the first
instance for a major irregularity under 5.1.11 is not in consonance with the
covenant of contract, termination clause in the primary contract i.e.,
dealership agreement read in the context of Amritsar Gas principle nails the
matter for the petitioner. The termination clause in primary contract is clause
45 and the same reads as follows:
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14. Termination clause makes it clear that powers of IOC to terminate
the dealership agreement is very wide. In the case on hand, IOC has
proceeded on the basis that there is critical irregularity as admitted,
undisputed but unexplained positive stock of 2896 Litres can clearly be
construed as unauthorised purchase and sale of fuel. There is no evidence for
this before AT was a faint argument that was made but in the considered
view of this Court this is no argument as review of an award on merits is
impermissible. This principle has been laid down by Hon'ble Supreme Court
in oft-quoted Ssangyong case law [Ssangyong Engineering and
Construction Company Limited Vs. National Highways Authority of India
reported in (2019) 15 SCC 131]. Most relevant paragraphs in Ssangyong
case law in this regard are Paragraphs 34 to 36 which read as follows:
'34. What is clear, therefore, is that the expression “public
policy of India”, whether contained in Section 34 or in Section 48,
would now mean the “fundamental policy of Indian law” as explained
in paras 18 and 27 of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental
policy of Indian law would be relegated to “Renusagar”
understanding of this expression. This would necessarily mean that
Western Geco [ONGC v. Western Geco International Ltd., (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away
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with. In short, Western Geco [ONGC v. Western Geco International
Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in
paras 28 and 29 of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain,
as under the guise of interfering with an award on the ground that the
arbitrator has not adopted a judicial approach, the Court's
intervention would be on the merits of the award, which cannot be
permitted post amendment. However, insofar as principles of natural
justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of
the 1996 Act, these continue to be grounds of challenge of an award,
as is contained in para 30 of Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference
insofar as it concerns “interest of India” has since been deleted, and
therefore, no longer obtains. Equally, the ground for interference on
the basis that the award is in conflict with justice or morality is now to
be understood as a conflict with the “most basic notions of morality
or justice”. This again would be in line with paras 36 to 39
ofAssociate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock
the conscience of the court that can be set aside on this ground.
36.Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is contrary to the
fundamental policy of Indian law, as understood in paras 18 and 27 of
Associate Builders[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , or secondly, that such award is against
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basic notions of justice or morality as understood in paras 36 to 39 of
Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and
Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment
Act only so that Western Geco [ONGC v. Western Geco International
Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in
Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now
done away with.'
15. The above can certainly not qualify as patent illegality. As patent
illegality is now a codified statutory ground available under Section 34(2A),
the proviso to Section 34(2A) makes it clear that reappreciation of evidence
is forbidden. Available material before AT has led AT to the conclusion that
positive stock of 2896 litres can be construed as unauthorised purchase, sale
of fuel and it can also be construed as critical irregularity. The minutes of the
Enquiry Committee dated 11.02.2019 and a letter of termination dated
06.03.2019 were before the AT as Exs.R.10 and R.11 respectively. The
inspection report dated 31.08.2018 is Ex.R.4. AT has appreciated Ex.R.4
(inspection report dated 31.08.2018) and Ex.R.3, letter dated 16.06.2018 and
come to the conclusion that the dealer has not shown interest in attending
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even the dealership meet and therefore, this clause 5.1.11 stock variation
beyond permissible limit is fatal. In other words, the stand of IOC that it gets
aggravated to a case of critical irregularities under clause 8.2 of MDG
warranting termination is based on appreciation of evidence. Reappreciation
is impermissible nay forbidden. In any event, there is nothing to demonstrate
that such appreciation is perverse. To put it differently, this is not a case of no
evidence. Further more, it is also a case of plausible view. There shall be
some further discussion about this infra elsewhere in this order.
16. An attempt was made to say that impugned award is against basic
notions of morality or justice. To put it legally, this would be under Clause
(iii) of Explanation 1 of Section 34 (2)(b)(ii) of A and C Act. Law is well
settled that a review of award on merits is impermissible as alluded to supra.
However, it may not be necessary to dilate more on this aspect of the matter
as the problem presents itself in the form of Amritsar Gas case law and the
expansive termination clauses for the petitioner as mentioned supra.
Amritsar Gas principle is the ratio laid down by Hon'ble Supreme Court in
Indian Oil Corporation Ltd., Amritsar Gas Service and others reported in
(1991) 1 SCC 533]. A Division Bench of this Court presided by Hon'ble
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Mr.Justice M.M.Sundresh (as his Lordship then was) in Bhagawan Balasai
principle [Indian Oil Corporation Ltd., Vs. Bhagawan Balasai Enterprises
and Another reported in 2017 SCC Online Mad 37266] had followed
Amritsar Gas principle and held in a Section 37 legal exercise (interfering
with arbitral award which had given benefit to a dealer in that case by setting
aside termination), that a contract which is determinable cannot be
specifically performed. To be noted, the author of this order had the
privilege of authoring Bhagawan Balasai order for Hon'ble Division Bench,
relevant paragraphs are paragraphs 4(t), 4(u) and 4(v) and the same read as
follows:
'4(t) This takes the discussion to the next aspect of the
matter. Now that the dealership agreement between IOC and the
dealer is by its very nature determinable and therefore, not
specifically enforceable in the light of Section 14(1)(c) of the
Specific Relief Act, the question arises as to whether this by itself
will become a bar to fetter the right of the arbitral tribunal which is
extremely wide and amplified, i.e., clause 61 of the dealership
agreement which has been extracted supra. Answer lies in the ratio
in Amritsar Gas Service.
4(u) To be noted, it is not clear as to whether the arbitration
clause in Amritsar Gas Service is of such width and amplitude as in
the instant case, but restoration of dealership limb of Award will still
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be hit by the rigor of Section 14(1)(c) of the Specific Relief Act. One
reason is the ratio laid down by the Supreme Court, particularly in
paragraph 12 in Amritsar Gas Service. The factual matrix is similar
and is not distinguishable. We deem it pertinent to extract
Paragraph 12 which reads as follows:
“12.The arbitrator recorded finding on Issue No.1 that
termination of distributorship by the appellant-Corporation was not
validly made under Clause 27. Thereafter, he proceeded to record
the finding on Issue No.2 relating to grant of relief and held that the
plaintiff respondent 1 was entitled to compensation flowing from the
breach of contract till the breach was remedied by restoration of
distributorship. Restoration of distributorship was granted in view
of the peculiar facts of the case on the basis of which it was treated
to be an exceptional case for the reasons given. The reasons given
state that the Distributorship Agreement was for an indefinite period
till terminated in accordance with the terms of the agreement and,
therefore, the plaintiff-respondent 1 was entitled to continuance of
the distributorship till it was terminated in accordance with the
agreed terms. The award further says as under:
“This award will, however, not fetter the right of the
defendant Corporation to terminate the distributorship of the
plaintiff in accordance with the terms of the agreement dated April 1,
1976, if and when an occasion arises.”
This finding read along with the reasons given in the award clearly
accepts that the distributorship could be terminated in accordance
with the terms of the agreement dated April 1, 1976, which contains
the aforesaid clauses 27 and 28. Having said so in the award itself,
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it is obvious that the arbitrator held the distributorship to be
revokable in accordance with clauses 27 and 28 of the agreement. It
is in this sense that the award describes the Distributorship
Agreement as one for an indefinite period, that is, till terminated in
accordance with clauses 27 and 28. The finding in the award being
that the Distributorship Agreement was revokable and the same
being admittedly for rendering personal service, the relevant
provisions of the Specific Relief Act were automatically attracted.
Sub-section (1) of Section 14 of the Specific Relief Act specifies the
contracts which cannot be specifically enforced, one of which is 'a
contract which is in its nature determinable'. In the present case, it
is not necessary to refer to the other clauses of subsection (1) of
Section 14, which also may be attracted in the present case since
clause © clearly applies on the finding read with reasons given in
the award itself that the contract by its nature is determinable. This
being so granting the relief of restoration of the distributorship even
on the finding that the breach was committed by the appellant-
Corporation is a contrary to the mandate in Section 14(1) of the
Specific Relief Act and there is an error of law apparent on the face
of the award which is stated to be made according to 'the law
governing such cases.' The grant of this relief in the award cannot,
therefore, be sustained.”
The other reason is even from a practical point of view, in our
opinion, ordering restoration of dealership would be only an idle
ceremony as the dealership can be restored and determined by IOC
the very next day. Therefore, the specific performance would only be
a paper decree which cannot be enforced.
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4(v) As far as the other judgment of the Supreme Court
placed before us by the learned counsel for the appellants being
E.Venkatakrishna case, it also proceeds on the basis that in a
contract of this nature, only damages can be awarded and specific
performance cannot be granted.'
17. To be noted, the facts in Bhagawan Balasai case law are not
distinguishable qua case on hand where AT had granted relief by setting
aside the termination notice and revived the dealership of oil company and
Section 34 Court had sustained the award.
18. Therefore, unless the petitioner is able to get over the hurdle of
clause 45 of primary contract namely, termination clause, no relief can be
granted to petitioner as the contract which is terminable/determinable in
cases of such dealership cannot be directed to be specifically performed
owing to Amritsar Gas case law.
19. The second point that was argued by learned counsel turns on
merits of the matter. It is a matter of perception and view when it comes to
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deciding whether 2896 Litres of positive stock variation will qualify as
critical irregularity, there is a view of subjectivity in this aspect of the matter.
Therefore, in cases of this nature, unless the view taken by AT is a
implausible view a Section 34 Court will not judicially intervene. In the case
on hand, this Court is unable to persuade itself to believe that the view taken
by AT is not an implausible view (for reasons set out supra) and as long as it
is not an implausible view, there is no ground to judicially intervene in a
Section 34 exercise.
20. Before writing the operative portion of this order, this Court deems
it appropriate to further remind itself that in addition to Fiza Developers
case as already alluded to supra, a Section 34 legal drill is a delicate balance
between the sanctity and finality of arbitral award (ingrained in Section 35 of
A and C Act) and minimum judicial intervention philosophy (ingrained in
Section 5 of A and C Act) on one side and judicial review principle forming
integral part of Rule of Law on the other.
21. Sequitur is, in the case on hand, there is nothing to compel this
Court to judicially intervene qua the impugned award. The further sequitur
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is curtains are down on captioned Arb OP. Therefore captioned Arb OP fails
and the same is dismissed. There shall be no order as to costs.
24.03.2022
Speaking/Non-speaking order
Index : Yes / No
Internet : Yes / No
mk
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Arb O.P.(Com. Div.)No.135 of 2022
M.SUNDAR. J
mk
Arb O.P.(Com. Div.)No.135 of 2022
24.03.2022
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