Jammu & Kashmir High Court - Srinagar Bench
Hindustan Petroleum Corporation Ltd vs M/S Fakhrudin Filling Station on 19 December, 2025
Author: Sanjay Dhar
Bench: Sanjay Dhar
2025:JKLHC-SGR:362
IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT SRINAGAR
(COMMERCIAL DIVISION SRINAGAR WING )
Reserved on: 11.12.2025
Pronounced on: 19.12.2025
Uploaded on: 19.12.2025
Whether the operative part
or full judgment is
pronounced: Full
AA No.37/2017
HINDUSTAN PETROLEUM CORPORATION LTD.
...PETITIONER(S)/APPELLANT(S)
Through: - Mr. M. M. Dar, Advocate, with
Mr. Zaffar Mehdi, Advocate.
Vs.
M/S FAKHRUDIN FILLING STATION
...RESPONDENT(S)
Through: - None.
CORAM: HON'BLE MR. JUSTICE SANJAY DHAR, JUDGE
JUDGMENT
1. The appellant has, through the medium of present appeal filed under Section 37 of the Arbitration and Conciliation Act, challenged judgment dated 26-08-2017, passed by the learned Principal District Judge Srinagar, whereby petition under Section 34 of the J&K Arbitration and Conciliation Act, filed by the respondent challenging award dated 01.12.2015 passed by the Arbitral Tribunal presided over by Mr. Parvinder Singh, the sole Arbitrator, has been set aside.
2. Briefly stated the facts leading to filing of the present appeal are that in the year 2005, the appellant Corporation AA No.37/2017 Page 1 of 40 2025:JKLHC-SGR:362 invited applications for allotment of dealership of retail petroleum outlet at village Newa, Pulwama. The respondent applied for allotment of the said Retail Outlet and in this regard, letter of intent came to be issued by the Appellant Corporation in favour of the respondent in December 2005, pursuant whereto, an agreement came to be executed between the parties in the month of June 2006. It appears that a civil suit was filed by one Javed Ahmad Wani against the appellant Corporation as well as against the respondent by impleading them as defendants, claiming interest in the retail outlet. It was noticed that the respondent had executed an agreement dated 29th February 2008, in favour of said Javed Ahmad, in terms whereof he had illegally handed over physical possession of the retail outlet to said Javed Ahmad in violation of the terms and conditions of the dealership agreement.
3. It seems that a show cause notice dated 28-05-2009 was issued by the appellant Corporation to the respondent asking him to explain his position in regard to violation of terms of the Dealership Agreement. The respondent filed his reply to the show cause notice in which he claimed that due to demise of his grandmother, he had allowed Shri Javed Ahmad to work as a caretaker manager temporarily but said Javed Ahmed had tried to blackmail him. It appears that the AA No.37/2017 Page 2 of 40 2025:JKLHC-SGR:362 appellant Corporation did not take any further action against the respondent after receipt of reply to the show cause notice from him.
4. Again in the month of February 2013, it came to the notice of the appellant Corporation that the cash credit facility which the respondent had availed for operating the retail outlet was being operated by one Mohammed Akbar Mir. The appellant Corporation came to know about this fact when the amount of fine imposed upon the retail outlet of the respondent was deposited through a payee's account cheque which was signed by Mohammed Akbar Mir. Pursuant to this, inspection of the premises was conducted by the officers of the appellant Corporation and it was found that the retail outlet was being operated by Mohammed Akbar Mir in violation of the dealership agreement.
5. A show cause notice dated 17-06-2013 was issued by the appellant Corporation to the respondent through registered post and one copy of the same is stated to have been handed over to the person who was running the affairs of the outlet at the allotted site. The show cause notice sent to the respondent through registered post was received back undelivered with the report "addressee was out of station". Another show cause notice dated 22-08-2013 was issued by the appellant Corporation to the respondent and the same AA No.37/2017 Page 3 of 40 2025:JKLHC-SGR:362 was sent at his residential address asking him to submit his reply within 15 days. Ultimately, the show cause notice was delivered to the respondent in person by the representative of the appellant Corporation at Jammu and one notice was sent to the address of retail outlet. When no response was received from the respondent, the appellant Corporation terminated the dealership agreement in terms of communication dated 02-01-2014 and the possession of the retail outlet was taken over by the appellant Corporation on 03-01-2014.
6. It appears that the aforesaid action of the appellant Corporation was challenged by the respondent by way of a writ petition before this Court, but an objection was raised by the appellant Corporation about maintainability of the writ petition in view of existence of the Arbitration Clause in the Dealership Agreement. The writ petition was, accordingly, held to be not maintainable. Thereafter, the respondent approached the Court of learned 2nd Additional District Judge, Srinagar, invoking jurisdiction under Section 9 of the J&K Arbitration and Conciliation Act, wherein an interim relief was granted in his favour.
7. Feeling aggrieved of the order passed by the learned 2nd Additional District Judge Srinagar, the appellant Corporation approached this Court by way of Arbitration AA No.37/2017 Page 4 of 40 2025:JKLHC-SGR:362 Appeal No.08/2014 and vide order dated 08-07-2014 passed by this Court, the appeal was disposed of and the interim direction passed by the learned 2nd Additional District Srinagar, was set aside with mutual consent of the parties and the appellant Corporation was left free to refer the dispute to the Arbitral Tribunal and seek relief in terms of the provisions contained in Section 17 of the Arbitration and Conciliation Act. In the meantime, the appellant Corporation invoked the Arbitration Clause and appointed Shri Parvinder Singh as the sole Arbitrator to adjudicate upon the disputes between the parties.
8. After the learned Arbitrator entered upon the reference, the parties filed their claims and counterclaims before him. They also filed documents in support of their respective claims and counterclaims, but did not lead any oral evidence before the learned Arbitrator. The learned Arbitrator, on the basis of the material available on record, observed that there is no doubt that the respondent has breached the terms and conditions of the dealership agreement, as such, he is not entitled to any relief. It has been recorded by the learned Arbitrator that the respondent has failed to negate the contention of the appellant Corporation that he had sold the retail outlet to Shri Muhammad Akbar Mir. According to the learned Arbitrator, the documents placed on record clearly AA No.37/2017 Page 5 of 40 2025:JKLHC-SGR:362 show that the respondent has, without intimating and without written approval of the appellant Corporation, transferred the retail outlet to a third party, thereby committing breach of the terms and conditions of the dealership agreement. It has also been recorded by the learned Arbitrator that the respondent had passed on control of dealership to Shri Javed Ahmad Wani in the first instance. The learned Arbitrator further concluded that the prayer of the respondent to restore dealership cannot be granted in view of the position of law declared by the Supreme Court in the case of Indian Oil Corporation v. Amritsar Gas Service & others, (1991) 1 SCC 533
9. The aforesaid award came to be challenged by the respondents by way of a petition under Section 34 of the Arbitration and Conciliation Act before the learned Principal District Judge Srinagar, who, vide impugned order dated 26.08.2017 has set aside the award passed by the learned Arbitrator and left the parties free to get the matter examined for re-determination. While setting aside the award passed by the learned Arbitrator, the learned District Judge has recorded that merely on the basis of the assertion of the appellant Corporation that the show cause notice was served upon the respondent without recording statement of the person who has served the said show cause notice upon AA No.37/2017 Page 6 of 40 2025:JKLHC-SGR:362 the respondent or on his retail outlet, the learned Arbitrator could not have recorded that the show cause notice was served upon the respondent. It has also been recorded by the learned Principal District Judge that the document which has been treated as Power of Attorney by the Arbitrator, prima facie, does not appear to be authorizing Mohammad Akbar Mir to control the business operations but it delineates the mode to operate the account in the bank as manager of the respondent. It has been observed by the learned Principal District Judge that there was no evidence led before the Arbitrator with regard to nature of actions and authorization that were being undertaken by Mohammad Akbar Mir which would have suggested that the physical control of the outlet has been assumed by him.
10. The appellant has challenged the impugned judgment dated 26-08-2017 passed by the learned District Judge on the grounds that it was not open to the learned District Judge to act as an appellate authority while deciding a petition under Section 34 of the Arbitration and Conciliation Act. It has been contended that the course adopted by the learned District Judge is impermissible in law. According to the appellant, the award passed by the learned Arbitrator is based on sound principles of law and the same has been passed after consideration of the material put forth before AA No.37/2017 Page 7 of 40 2025:JKLHC-SGR:362 him by the parties. It has also been contended that the findings recorded by the Arbitrator are based on evidence and, therefore, the same could not have been disturbed by the learned District Judge.
11. Initially, the respondent was represented by a counsel, but later on, the counsel made a statement before the Court that he is no longer representing the respondent, whereafter a notice was issued to the respondent, but despite service, he did not choose to appear before the Court and, accordingly, vide order dated 28.11.2025, the respondent was said exparte.
12. I have heard learned counsel for the appellant and I have also perused the impugned judgment, the grounds of appeal, the award passed by the learned Arbitrator as also the record of the arbitration.
13. Before proceeding to determine merits of the contentions urged by the petitioner for assailing the impugned award, it is necessary to understand the scope and power of the Court under Section 34 of the Act of 1997 in interfering with an award of an Arbitrator. This is imperative for determining the issue as to whether the District Judge was justified in interfering with the award of the Arbitrator, while exercising its powers under Section 34 AA No.37/2017 Page 8 of 40 2025:JKLHC-SGR:362 of the Arbitration Act of 1997. The power of a Court to set aside an award under Section 34 of the Act of 1997 is provided for in the said provision in the following manner:
"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 sub- section (2) and subsection (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
(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 notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to 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 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 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 cannot derogate, or, failing such agreement, was not in accordance with this Part; or AA No.37/2017 Page 9 of 40 2025:JKLHC-SGR:362
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of State:
Explanation. Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared for the avoidance of any doubt, that an award is in conflict with the public policy of the State if the making of the award was induced or affected by fraud or corruption or was in violation of section 58 or section 64.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had bow disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is 16 appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
14. Clause (a) of sub section (2) quoted above, is not attracted to the present case as the grounds of challenge raised by the respondent for challenging the award of the Arbitrator before the court below, do not fall in any of the sub-clauses of clause (a). Even sub-clause (i) of clause (b) of AA No.37/2017 Page 10 of 40 2025:JKLHC-SGR:362 sub-section (2) is not relevant for the purpose of determination of the present case. We are concerned only with sub-clause (ii) of clause (b) of sub-section (2) quoted above, which provides that an arbitral award is liable to be set aside if the same is in conflict with the public policy of the State.
15. It is pertinent to mention here that the scope of power under Section 37 of the Arbitration and Conciliation Act in interfering with the award of the Arbitrator is similar to the scope of power of a Court under Section 34 of the Arbitration and Conciliation Act. In the instant case, the learned District Judge, while interfering with the award passed by the learner Arbitrator, has held that the award passed by the arbitrator is against the fundamental public policy of the State. It is, therefore, necessary to understand as to what is meant by the expressions "public policy of the State" or "public policy of India' as they appear in the corresponding provisions of the Arbitration and conciliation Act, 1996 (for short "the Act of 1996").
16. Explanation to clause (b) of sub-section (2) of Section 34 of the Act of 1997, as quoted above, provides that an award would be in conflict with the public policy of the State if the making of the award was induced or affected by fraud or corruption or if it was in violation of Section 58 or Section AA No.37/2017 Page 11 of 40 2025:JKLHC-SGR:362
64. As to what is meant by the expressions 'public policy of the State' or 'the public policy of India' has been a subject matter of deliberation and discussion before the Supreme Court in a large number of cases. It would be apt to refer to some of these cases with a view to understand the scope and power of this Court to interfere with the award of an Arbitrator.
17. The Supreme Court has, in the case of Oil and Natural Gas Corporation Ltd vs. Saw Pipes Ltd., (2003) 5 SCC 705, while construing the expression "the public policy of India" as contained in Section 34 (2)(b)(ii) of the Act of 1996, held as under:
"31.Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to: -
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or AA No.37/2017 Page 12 of 40 2025:JKLHC-SGR:362
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.
74 In the result, it is held that:-
A. (1) The Court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:-
(i) a party was under some incapacity, or
(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 notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to 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 arbitration;
(2) The Court may set aside the award:-
(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:-
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part-I of the Act.AA No.37/2017 Page 13 of 40
2025:JKLHC-SGR:362 However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:-
(a) fundamental policy of Indian law;
(b) the interest of India; or
(c) justice or morality, or
(d) if it is patently illegal.
(4) It could be challenged:-
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
B. (1) The impugned award requires to be set aside mainly on the grounds:-
(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;
(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying AA No.37/2017 Page 14 of 40 2025:JKLHC-SGR:362 authorities from the bills for payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.
(vii) In certain contracts, it is impossible to assess the damages or prove the same.
Such situation is taken care by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract".
18. Before proceeding to analyse the ratio laid down in the afore-quoted observations of the Supreme Court it would be pertinent to mention here that vide Amendment Act No. 3 of 2016, certain amendments were carried out in Section 34 of the Act of 1996 w.e.f. 23.10.2015. By virtue of this amendment Explanation 1 to clause (b)(ii) of sub section (2) of Section 34 was modified and Explanation 2 along with subsection (2A) was incorporated in Section 34 of the Act of 1996. Prior to that, the provisions contained in Section 34 of the Act of 1996 were identical to the provisions contained in Section 34 of the Act of 1997 as they existed at the relevant time. Vide Explanation 1, it was provided that the public policy of India would mean 'fundamental policy of Indian law' or 'the most basic notions of justice or morality' and vide Section (2A), the ground of patent illegality for setting aside an award was incorporated.
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19. As we have already seen from the afore-quoted observations of the Supreme Court in Saw Pipes Ltd's case (supra), even prior to the incorporation of amendments in terms of the Act of 3 of 2016 in Section 34 of the Act of 1996, it was held by the Supreme Court that an award could be set aside if it is contrary to the fundamental policy of Indian law, the interest of India, or justice or morality, or if it is patently illegal. So, the expressions 'public policy of State/India' would embrace within their purview the expressions 'fundamental policy of India law', 'interest of India', 'justice or morality' and 'patent illegality'. Thus, non- incorporation of the amendments made vide Act No. 03 of 2016 to the Act of 1996 in the Act of 1997, which governs the present case, would not make any difference to the scope and power of this Court to interfere in the impugned award passed by the learned Arbitrator. The same can be set aside, if it is found against the public policy of the State/India, that is to say, if it is contrary to the interest of India or contrary to justice or morality or if it is patently illegal.
20. The question that arises for consideration is as to what is meant by the expressions "fundamental policy of Indian law/State law", "the interest of India/State", "justice or morality", or "patent illegality". These expressions came up for discussion and deliberation before the Supreme Court in AA No.37/2017 Page 16 of 40 2025:JKLHC-SGR:362 the case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49. Paras (27) to (42) of the judgment are relevant to the context and the same are reproduced as under:
"Fundamental Policy of India Law:
27.Coming to each of the heads contained in the Saw Pipes judgment, we will first deal with the head "fundamental policy of Indian Law". It has already been seen from the Renusagar judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.
28.In a recent judgment, ONGC Ltd. v. Western Geco International Ltd., 2014 (9) SCC 263, this Court added three other distinct and fundamental juristic principles which must be understood as a part and parcel of the fundamental policy of Indian law. The Court held: "35. What then would constitute the "fundamental policy of Indian law" is the question. The decision in ONGC [ONGC Ltd. v.
Saw Pipes Ltd., (2003) 5 SCC 705] does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "fundamental policy of Indian law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law. The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a "judicial approach" in the matter. The duty to adopt a judicial approach AA No.37/2017 Page 17 of 40 2025:JKLHC-SGR:362 arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.
38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.
39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the AA No.37/2017 Page 18 of 40 2025:JKLHC-SGR:362 touchstone of Wednesbury principle [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223: (1947) 2 All ER 680 (CA)] of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest."
29. It is clear that the juristic principle of a "judicial approach "demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.
30.The Audi Alteram Partem principle which undoubtedly is a fundamental juristic principle in Indian law is also contained in Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act. These Sections read as follows:
"18. Equal treatment of parties.- The parties shall be treated with equality and each party shall be given a full opportunity to present his case.
34. Application for setting aside arbitral award.-
(1) xxx xxx xxx (2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-AA No.37/2017 Page 19 of 40
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(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
31 The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where::
(i)a finding is based on no evidence, or
(ii) an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
32 A good working test of perversity is contained in two judgments. In H.B. Gandhi, Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons, 1992 Supp (2) SCC 312 at p. 317, it was held:
"7. ...................It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police, (1999) 2 SCC 10 at para 10, it was held:
"10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."
33 It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and AA No.37/2017 Page 20 of 40 2025:JKLHC-SGR:362 consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., (2012) 1 SCC 594, this Court held:
"21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non- member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at."
34 It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood. Interest of India 35 The next ground on which an award may be set aside is that it is contrary to the interest of India. Obviously, this concerns itself with India as a member of the world community in its relations with foreign powers. As at present advised, we AA No.37/2017 Page 21 of 40 2025:JKLHC-SGR:362 need not dilate on this aspect as this ground may need to evolve on a case by case basis.
Justice 36 The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs. 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice". Morality 37 The other ground is of "morality". Just as the expression "public policy" also occurs in Section 23 of the Indian Contract Act, so does the expression "morality". Two illustrations to the said section are interesting for they explain to us the scope of the expression "morality".
"(j) A, who is B's Mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (XLV of 1860)."
38 In Gherulal Parekh v. Mahadeo Dass Maiya, 1959 Supp (2) SCR 406, this Court explained the concept of "morality" thus-
"Re. Point 3 - Immorality: The argument under this head is rather broadly stated by the learned Counsel for the appellant. The learned counsel attempts to draw an analogy from the Hindu Law relating to the doctrine of pious obligation of sons to discharge their father's debts and contends that what the Hindu Law considers to be immoral in that context may appropriately be applied to a case under s. 23 of the Contract Act. Neither any authority is cited nor any legal basis is suggested for importing the doctrine of Hindu Law into the domain of AA No.37/2017 Page 22 of 40 2025:JKLHC-SGR:362 contracts. Section 23 of the Contract Act is inspired by the common law of England and it would be more useful to refer to the English Law than to the Hindu Law texts dealing with a different matter. Anson in his Law of Contracts states at p. 222 thus:
"The only aspect of immorality with which Courts of Law have dealt is sexual immorality........... ."
Halsbury in his Laws of England, 3rd Edn., Vol. 8, makes a similar statement, at p. 138 :
"A contract which is made upon an immoral consideration or for an immoral purpose is unenforceable, and there is no distinction in this respect between immoral and illegal contracts. The immorality here alluded to is sexual immorality."
In the Law of Contract by Cheshire and Fifoot, 3rd Edn., it is stated at p. 279:
"Although Lord Mansfield laid it down that a contract contra bonos mores is illegal, the law in this connection gives no extended meaning to morality, but concerns itself only with what is sexually reprehensible."
In the book on the Indian Contract Act by Pollock and Mulla it is stated at p. 157:
"The epithet "immoral" points, in legal usage, to conduct or purposes which the State, though disapproving them, is unable, or not advised, to visit with direct punishment."
The learned authors confined its operation to acts which are considered to be immoral according to the standards of immorality approved by Courts. The case law both in England and India confines the operation of the doctrine to sexual immorality. To cite only some instances: settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreements to pay money for future illicit cohabitation, promises in regard to marriage for consideration, or contracts facilitating divorce are all held to be void on the ground that the object is immoral.
AA No.37/2017 Page 23 of 40
2025:JKLHC-SGR:362 The word "immoral" is a very comprehensive word. Ordinarily it takes in every aspect of personal conduct deviating from the standard norms of life. It may also be said that what is repugnant to good conscience is immoral. Its varying content depends upon time, place and the stage of civilization of a particular society. In short, no universal standard can be laid down and any law based on such fluid concept defeats its own purpose. The provisions of S. 23 of the Contract Act indicate the legislative intention to give it a restricted meaning. Its juxtaposition with an equally illusive concept, public policy, indicates that it is used in a restricted sense; otherwise there would be overlapping of the two concepts. In its wide sense what is immoral may be against public policy, for public policy covers political, social and economic ground of objection. Decided cases and authoritative text-book writers, therefore, confined it, with every justification, only to sexual immorality. The other limitation imposed on the word by the statute, namely, "the court regards it as immoral", brings out the idea that it is also a branch of the common law like the doctrine of public policy, and, therefore, should be confined to the principles recognized and settled by Courts. Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold."
39 This Court has confined morality to sexual morality so far as section 23 of the Contract Act is concerned, which in the context of an arbitral award would mean the enforcement of an award say for specific performance of a contract involving prostitution. "Morality" would, if it is to go beyond sexual morality necessarily cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. However, interference on this ground would also be only if something shocks the court's conscience.
Patent Illegality 40 We now come to the fourth head of public policy namely, patent illegality. It must be remembered that under the explanation to section AA No.37/2017 Page 24 of 40 2025:JKLHC-SGR:362 34 (2) (b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the arbitrator. This is explained by Lord Justice Denning in R v. Northumberland Compensation Appeal Tribunal. Ex Parte Shaw., 1952 1 All ER 122 at page 130:
"Leaving now the statutory tribunals, I turn to the awards of the arbitrators. The Court of King's Bench never interfered by certiorari with the award of an arbitrator, because it was a private tribunal and not subject to the prerogative writs. If the award was not made a rule of court, the only course available to an aggrieved party was to resist an action on the award or to file a bill in equity. If the award was made a rule of court, a motion could be made to the court to set it aside for misconduct of the arbitrator on the ground that it was procured by corruption or other undue means: see the statute 9 and 10 Will. III, c. 15. At one time an award could not be upset on the ground of error of law by the arbitrator because that could not be said to be misconduct or undue means, but ultimately it was held in Kent v. Elstob, (1802) 3 East 18, that an award could be set aside for error of law on the face of it. This was regretted by Williams, J., in Hodgkinson v. Fernie, (1857) 3 C.B.N.S. 189, but is now well established."
41 This, in turn, led to the famous principle laid down in Champsey Bhara Company v. The Jivraj Balloo Spinning and Weaving Company Ltd., AIR 1923 PC 66, where the Privy Council referred to Hodgkinson and then laid down:
"The law on the subject has never been more clearly stated than by Williams, J. in the case of Hodgkinson v. Fernie:
"The law has for many years been settled, and remains so at this day, that, where a cause or matters in difference are referred to an arbitrator a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact ...... The only exceptions to that rule are cases where the award is the result of AA No.37/2017 Page 25 of 40 2025:JKLHC-SGR:362 corruption or fraud, and one other, which though it is to be regretted, is now, I think firmly established viz., where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established."
"Now the regret expressed by Williams, J. in Hodgkinson v. Fernie has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned judges have arrived at finding what the mistake was is by saying: "Inasmuch as the Arbitrators awarded so and so, and inasmuch as the letter shows that then buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Cl.52." But they were entitled to give their own interpretation to Cl. 52 or any other article, and the award will stand unless, on the face of it they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound. Upon this point, therefore, their Lordships think that the judgment of Pratt, J was right and the conclusion of the learned Judges of the Court of Appeal erroneous."
This judgment has been consistently followed in India to test awards under Section 30 of the Arbitration Act, 1940.
AA No.37/2017 Page 26 of 40
2025:JKLHC-SGR:362 42 In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three subheads -
42.1(a) a contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under:
"28. Rules applicable to substance of dispute.-
(1) Where the place of arbitration is situated in India,-
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"
42.2(b) a contravention of the Arbitration Act itself would be regarded as a patent illegality- for example if an arbitrator gives no reasons for an award in contravention of section 31(3) of the Act, such award will be liable to be set aside. 42.3(c) Equally, the third sub-head of patent illegality is really a contravention of Section 28 (3) of the Arbitration Act, which reads as under:
"28. Rules applicable to substance of dispute.-
(1) Xxx xxx
(2) Xxx xxx
(3) In all cases, the arbitral tribunal shall
decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."
This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do".
AA No.37/2017 Page 27 of 40
2025:JKLHC-SGR:362
21. In the recent case of OPG Power Generation Private Ltd vs. Enexio Power Cooling Solutions India Private Limited and another, 2024 SCC Online SC 2600, the Supreme Court, after surveying its earlier decisions with regard to the legal principles governing challenge to an arbitral award, observed that, for an award to be against the policy of India, a mere infraction of the municipal laws of India is not enough. It was held that there must be, inter alia, infraction of fundamental policy of Indian law, including a law meant to serve public interest or public good. As to what is meant by the expression 'fundamental policy of Indian law', the Supreme Court observed that the said expression has to be accorded a restricted meaning in terms of Explanation-1 which was incorporated vide amendment made in the year 2015. Para 52 of the said judgment is relevant to the context and the same is reproduced as under:
"52. The legal position which emerges from the aforesaid discussion is that after the '2015 amendments' in Section 34 (2)(b)(ii) and Section 48(2)(b) of the 1996 Act, the phrase "in conflict with the public policy of India" must be accorded a restricted meaning in terms of Explanation
1. The expression "in contravention with the fundamental policy of Indian law" by use of the word 'fundamental' before the phrase 'policy of Indian law' makes the expression narrower in its application than the phrase "in contravention with the policy of Indian law", which means mere contravention of law is not enough to make an award vulnerable. To bring the AA No.37/2017 Page 28 of 40 2025:JKLHC-SGR:362 contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country.
Without intending to exhaustively
enumerate instances of such
contravention, by way of illustration, it could be said that (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and (c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law.
However, while assessing whether there has been a contravention of the fundamental policy of Indian law, the extent of judicial scrutiny must not exceed the limit as set out in Explanation 2 to Section 34(2)(b)(ii). Most basic notions of morality and justice"
22. In the aforesaid judgment, the Supreme Court, while explaining the connotation of the expression 'most basic notions of morality and justice' observed as under:
"58. In the light of the discussion above, in our view, when we talk about justice being done, it is about rendering, in accord with law, what is right and equitable to one who has suffered a wrong. Justice is the virtue by which the society/ court / tribunal gives a man his due, opposed to injury or wrong. Dispensation of justice in its quality may vary, dependent on person who dispenses it. A trained judicial mind may dispense justice in a manner different from what a person of ordinary prudence would do. This is so, because a trained judicial mind is likely to figure out even minor infractions of law/ norms which may escape the attention of a person with ordinary prudence. Therefore, the placement of words "most basic notions" before "of justice" in Explanation 1 has its significance. Notably, at the time when the 2015 Amendment was brought, the existing law with regard to grounds for setting aside AA No.37/2017 Page 29 of 40 2025:JKLHC-SGR:362 an arbitral award, as interpreted by this See paragraph 76 of the judgment in Ssyanyong (supra) Court, was that an arbitral award would be in conflict with public policy of India, if it is contrary to: (a) the fundamental policy of Indian law; (b) the interest of India;(c) justice or morality; and /or is (d) patently illegal. As we have already noticed, the object of inserting Explanations 1 and 2 in place of earlier explanation to Section 34(2)(b)(ii) was to limit the scope of interference with an arbitral award, therefore the amendment consciously qualified the term 'justice' with 'most basic notions' of it. In such circumstances, giving a broad dimension to this category would be deviating from the legislative intent. In our view, therefore, considering that the concept of justice is open- textured, and notions of justice could evolve with changing needs of the society, it would not be prudent to cull out "the most basic notions of justice". Suffice it to observe, they ought to be such elementary principles of justice that their violation could be figured out by a prudent member of the public who may, or may not, be judicially trained, which means, that their violation would shock the conscience of a legally trained mind. In other words, this ground would be available to set aside an arbitral award, if the award conflicts with such elementary/ fundamental principles of justice that it shocks the conscience of the Court in conflict with most basic notions of morality or justice most basic notions of justice Morality.
59. The other ground is of morality. On the question of morality, in Associate Builders (supra), this Court, after referring to the provisions of Section 23 of the Contract Act, 1872; earlier decision of this Court in Gherulal (supra); and Indian Contract Act by Pollock and Mulla, held that judicial precedents have confined morality to sexual morality. And if 'morality' were to go beyond sexual morality, it would cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. The court also clarified that interference on this ground would be only if something shocks the court's conscience"
23. While explaining as to what is meant by the expression 'patent illegality' the Supreme Court, in the aforesaid AA No.37/2017 Page 30 of 40 2025:JKLHC-SGR:362 judgment, clarified that it refers to such an illegality as goes to the root of the matter and does not amount to mere erroneous application of law.
24. From the foregoing analysis of law on the subject, it is clear that the power of this Court to interfere with an award of an Arbitrator is extremely limited and it is only on the grounds as mentioned in Section 34 of the Act of 1997 that the Court would be justified in interfering with the award of an arbitrator. In the present case, as already stated, we are only concerned with the question, as to whether the award that has been set aside by the court below is against the public policy of the State which, as already stated, would include, 'fundamental policy of State law', 'interest of the State, the basic notions of justice and morality and 'patent illegality'. All these expressions have been explained by the Supreme Court in the judgments referred to hereinbefore.
25. With the aforesaid legal position in mind, let us now proceed to consider as to whether the learned District Judge was right in interfering with the findings of the learned Arbitrator recorded by him in his award dated 01-12-2015. A perusal of the impugned judgment passed by the learned District Judge would reveal that the court has concluded that the finding of the learned Arbitrator with regard to service of the show cause notice upon the respondent is not AA No.37/2017 Page 31 of 40 2025:JKLHC-SGR:362 based upon any evidence. According to the learned District Judge, it was incumbent upon the learned Arbitrator to record statement of the person who had actually delivered the show cause notice to the respondent or his representative working at the retail outlet.
26. In the above context, it is to be noted that, admittedly, statement of none of the persons has been recorded by the Arbitrator and, in fact, no oral evidence has been recorded by the Arbitrator. But before the Arbitrator, copy of show cause notice dated 22-08-2013 had been placed on record whereby the appellant Corporation had asked the respondent to furnish his reply within 15 days and it was further made clear that if no reply is received, it will be presumed that there is no explanation to offer. Along with the said show cause notice, copy of show cause notice dated 17-06-2013 was also annexed. The show cause notice bears the signature of the respondent under the endorsement "received". The endorsement bears the date "31-08-2013"
and it also bears the stamp of M/S Fakhr-ud-Din Filling Station, of which the respondent happens to be the proprietor. The signature appearing on the receipt, upon comparison by naked eye with the admitted signature of the respondent, appears to bear similarities. The respondent has not denied his signature on the said letter during the AA No.37/2017 Page 32 of 40 2025:JKLHC-SGR:362 proceedings before the learned Arbitrator nor has he denied the authenticity of his receipt appearing on the copy of show cause notice dated 22-08-2013.
27. Besides this, another letter dated 03-12-2013 is also on record of the Arbitral Tribunal. By virtue of this letter, a show cause notice has been issued to the respondent by the appellant Corporation, asking him to furnish his reply by December 20, 2013. The said letter bears the receipt endorsed by one Nisar Ahmad under the seal of M/S Syed Fakhr-ud-Din Filling Station. The endorsement is dated 04.12.2013. This endorsement of an employee of the respondent has not been disputed or denied by him during the course of arbitral proceedings. In fact, in the written arguments filed by the respondent before the learned Arbitrator, it has been contended by him that the appellant Corporation has treated the said notice received by the salesman as due service upon the respondent and technically waited for the stipulated time whereafter it issued termination order dated 02-01-2014. It has been further contended in the said written arguments that the service of notice upon the salesman is not service upon the respondent in the eyes of law, meaning thereby that the respondent has admitted that the notice was received by the salesman who AA No.37/2017 Page 33 of 40 2025:JKLHC-SGR:362 was on duty at the retail outlet of which the respondent was the proprietor.
28. If we have a look at the terms and conditions of the Dealership Agreement, as per Clause (63), all notices required to be served by either party upon the other party shall be deemed properly served if delivered in the case of appellant Corporation at its regional office at Jammu or sent by registered post to its said office and in the case of dealer, if sent by post or delivered by hand at his place of business or pasted thereat, meaning thereby that if a notice is sent by the appellant Corporation to the dealership address of respondent through registered post or is delivered to any employee over there in terms of Clause (63) of the Dealership Agreement, it will be deemed to have been received by the respondent. In the instant case, the appellant Corporation has not only served the show cause notice upon the respondent personally but it has done so by sending the show cause notice on his address of dealership outlet and by delivering a copy of the show cause notice to one of his employees. In the face of aforesaid overwhelming material on record and there being no rebuttal to the same on behalf of the respondent, there was hardly any scope for the learned Arbitrator to hold that service of the show cause notice has not been effected upon the respondent. The only conclusion AA No.37/2017 Page 34 of 40 2025:JKLHC-SGR:362 that could have been drawn by the learned Arbitrator on the basis of the material on record was that the show cause notice was duly served upon the respondent, who, admittedly, did not respond to the same.
29. The learned District Judge, while disturbing the findings of the learned Arbitrator on the aforesaid aspect of the matter, has failed to consider the documents which were available before the learned Arbitrator. The conclusion drawn by the learned District Judge with regard to the service of the show cause notice upon the respondent is, therefore, perverse and cannot be sustained in law.
30. Another ground on the basis of which the learned District Judge has set aside the award of the learned Arbitrator is that the letter which the respondent had given to the bank authorizing operation of the bank account through Mohammad Akbar Mir appears to be only a mode to operate the account in the bank as manager of the respondent.
31. If we have a look at letter dated 15-06-2010, placed on record by the respondent before the learned Arbitrator, it is recorded therein that the respondent has authorized Mohammed Akbar Mir, who is working as a manager at his retail outlet, to operate his account as authority holder. This AA No.37/2017 Page 35 of 40 2025:JKLHC-SGR:362 letter has been interpreted by the learned Arbitrator to mean that Shri Mohammed Akbar Mir was an attorney holder of the respondent. The learned Arbitrator has further observed that the said authority letter could not have been given by the respondent without the knowledge of the appellant Corporation and that there is no material on record to show that the respondent had appointed Shri Mohammed Akbar Mir as a manager. It has been further observed by the learned Arbitrator that in this case, financial control of the business was transferred by the respondent to Mohammed Akbar Mir by virtue of the authority letter as he had been authorized to operate the account.
32. It is true that in the authority letter dated 15.06.2010, the respondent has mentioned that Mohammad Akbar Mir was his manager and that he has authorized him to operate the cash credit facility extended by the bank in favour of his proprietorship firm but the interpretation given by the learned Arbitrator to this letter is possible and plausible because by virtue of the said letter, the respondent has allowed Mohammad Akbar Mir to operate the account of the firm thereby giving him the financial control. In these circumstances, the burden was on the respondent to prove that, in fact, Mohammad Akbar Mir was only a manger and AA No.37/2017 Page 36 of 40 2025:JKLHC-SGR:362 not a person who was controlling the finances of the business.
33. It has to be borne in mind that when a Court is considering a challenge to an arbitral award, it has not to act as a Court of appeal. An award based on limited evidence or an interpretation given by an arbitrator to the terms of the agreement or a document which is plausible cannot be interfered with by a Court while considering a challenge to the award. The Court cannot re-appreciate the evidence with a view to hold that the award suffers from patent illegality, nor can it interpret the terms of the agreement or a document so as to undo the interpretation given by the arbitrator, provided the interpretation given by an Arbitrator to the terms of the agreement or a document is plausible and reasonable. It is also clear that every error of law committed by the Arbitral Tribunal would not constitute a patent illegality.
34. In the instant case, as already stated, the interpretation given by the learned Arbitrator to the authority letter that was given by the respondent to Mohammad Akbar Mir, cannot be termed as irrational or impossible. The same is definitely plausible and reasonable having regard to the fact that the respondent did not produce any evidence before the learned Arbitrator to show that Mohammad Akbar Mir was AA No.37/2017 Page 37 of 40 2025:JKLHC-SGR:362 on his payrolls as an employee, the burden of proof in respect of which was upon him and not upon the appellant Corporation. Once the interpretation of learned Arbitrator that the respondent had handed over financial control of the business to Mohammad Akbar Mir, is acceptable, it constitutes a breach of Clause (45) of the Dealership Agreement, which reads as under:
45. EXCEPT WITH THE PREVIOUS WRITTEN CONSENT OF THE CORPORATION:
(i) The dealer shall not enter into any arrangement contract or understanding whereby the operations of the dealer hereunder are or may be controlled carried out and/or financed by any other person, firm or company whether directly or indirectly and whether in whole or in part.
(ii) The dealer (if it be a firm or a co-operative society) shall not effect any change in its constitution whether in the identity of its partners, members or in the share/share holding of any of them or in the terms of the deed of partnership or of the bye-laws as the case may be, in the event of the death of any partner/member of a firm co-
operative society which has been appointed as a dealer hereunder the surviving partners/ members hereby agree to indemnify and keep indemnified the corporation against and claims or demands which may be made by the heirs of the deceased partner member.
35. It is not the case of the respondent that he had given authority to Mohammad Akbar Mir to operate the finances of the retail outlet with the consent of the appellant Corporation. Therefore, the respondent was clearly in breach of the aforesaid clause. The action of the appellant AA No.37/2017 Page 38 of 40 2025:JKLHC-SGR:362 Corporation in termination of the Dealership Agreement, particularly in the absence of any reply to the show cause notice issued by the appellant Corporation against the respondent, is perfectly in accordance with law and the same could not have been interfered with by the learned District Judge.
36. Lastly, the learned District Judge has failed to appreciate that the Dealership Agreement between the parties was determinable in its nature and, therefore, could not be specifically enforced. The Dealership Agreement contains the clauses which provide for situations in which the said agreement can be determined by either of the parties and is, therefore, a contract which is determinable in nature and, as such, could not have been specifically enforced in view of the provision contained in Section 14(d) of the Specific Relief Act. The learned Arbitrator has rightly refused to do so while passing award dated 01.12.2015 by relying upon the ratio laid down by the Supreme Court in Indian Oil Corporation v. Amritsar Gas Service & others (supra).
37. For what has been discussed hereinbefore, the impugned judgment passed by the learned District Judge, Srinagar, is not sustainable in law because the learned District Judge, while passing the said judgment, has AA No.37/2017 Page 39 of 40 2025:JKLHC-SGR:362 exceeded the jurisdiction conferred upon him under Section 34 of the Arbitration and Conciliation Act. The same, therefore, deserves to be set aside.
38. Accordingly, the appeal is allowed and the impugned judgment passed by the learned District Judge, Srinagar, is set aside and the award passed by the learned Arbitrator is upheld.
39. The record be sent back.
(Sanjay Dhar) Judge Srinagar 19 .12.2025 "Bhat Altaf"
Whether the Judgment is speaking: Yes Whether the judgment is reportable: Yes AA No.37/2017 Page 40 of 40