Punjab-Haryana High Court
M/S Indian Oil Corporation Limited vs M/S Rajpura Gas House And Another on 18 August, 2009
Author: K.Kannan
Bench: K.Kannan
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
FAO No.3815 of 2009
Date of decision:18.08.2009
M/s Indian Oil Corporation Limited ...Petitioner
versus
M/s Rajpura Gas House and another .....Respondents
CORAM: HON'BLE MR. JUSTICE K.KANNAN
Present: Mr. S.C.Kapoor, Senior Advocate with Mr. Ashish Kapoor,
Advocate, for the appellant.
Mr. Sanjeev Bansal, Advocate, for the Caveator-respondent.
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1. Whether reporters of local papers may be allowed to see the
judgment ?
2. To be referred to the reporters or not ?
3. Whether the judgment should be reported in the digest ?
K.Kannan, J.
1. The nature of relief that could be granted to a Gas Agency securing contract of distributorship of LPG cylinders with the Indian Oil Corporation in the event of unlawful termination, is the subject of controversy in this appeal. The issue was whether an agent complaining of unlawful termination could seek for its specific enforcement or the remedy would lie merely in damages.
2. The respondent before this Court M/s Rajpura Gas House had been awarded a distributorship under a contract with M/s Indian Oil Corporation by an agreement dated 15.11.1991. During the currency of the contract, a notice had been served on 18.12.2003 directing the Gas Agency to show cause why the distributorship should not be terminated FAONo.3815 of 2009 -2- by invoking Clause 27(d) of the distributorship agreement on the alleged ground of violation of terms and conditions by indulging in criminal activities. The Gas Agency replied to the notice but dissatisfied with the explanation, the Indian Oil Corporation proceeded to terminate the agency by an order dated 06.01.2004.
3. The contract of agency provided for a relief mechanism through an arbitral process and a resort to an adjudication before an Arbitrator, was made. This exercise came to be done after a direction from this Court when the agent had originally filed a writ petition No.11942 of 2007 challenging the termination but was deflected by its order dated 06.08.2007 to approach the Arbitrator for relief. The Arbitrator found that the termination of contract was bad, but held relying on the decision of the Hon'ble Supreme Court in M/s Indian Oil Corporation Ltd. Versus Amritsar Gas Service-(1991)1 Supreme Court Cases 533, that the appropriate relief would be a claim for damages and not to provide for continuation of the contract. The disposition of the Hon'ble Supreme Court obtained in relation to Section 14 of the Specific Relief Act that details the nature of contract that cannot be specifically enforced. The Hon'ble Supreme Court was referring to a similar contract with an agent where it adverted to yet another Clause 28, which incidentally is an exact replication of the clause found in this case as well, that a contract that provided for right of termination with a month's notice was sufficient indication that the remedy in damages alone was appropriate and proceeded to modify the award of the Arbitrator to be confined to damages for the notice period of one month. FAONo.3815 of 2009 -3-
4. The award passed by the Arbitrator came to be challenged by means of a petition under Section 34 before the Additional District Judge, Chandigarh. The learned Judge held that once the Arbitrator found the termination to be null and void, it should have presumed that the order of termination was not in existence and as a natural consequence, the agency was liable to be restored. Especially so, when it was granted for an indefinite period, there ought to have been no ground to revoke it. The learned Judge relied on a decision of the Hon'ble Supreme Court in Harbans Lal Sahnia Versus Indian Oil Corporation- (2003) 2, Supreme Court Cases 107, where the termination of agency to supply petroleum products was held to be bad and passed an order for restoration of supplies. He also relied on yet another decision where on a writ petition challenging the termination of contract of distributorship, on a finding that the cancellation was bad, the Madras High Court directed the restoration of an agency in D.Santhppan Versus IBP Company, MANU/TN/0562/2003. The learned Judge remitted the matter to the Arbitrator again to pass a fresh order in the light of his observations.
5. It is this judgment of the District Judge setting aside the award of the Arbitrator and his remittal that is in challenge in this appeal. The matter does not require any great dilation on principles of law since they are substantially covered by the decision of the Hon'ble Supreme Court in Amritsar Gas Agency case referred to above. An agent who complains of wrongful termination of a contract cannot seek for specific enforcement even if it is wrongful by virtue of Section 14 of the Specific FAONo.3815 of 2009 -4- Relief Act, 1963, which sets out as follows:-
(a) a contract for the non-performance of which
compensation in money is an adequate relief;
(b) ......
(c) a contract which is in its nature determinable."
In this case, Clause 28 of the agreement between the parties specifically provides:
"Without prejudice to the foregoing provision or anything to the contrary herein contained, either of the parties hereto, namely, the Corporation or the Distributor, shall be entitled to terminate this Agreement on giving thirty days notice to the other party without assigning any reason for such termination."
The foregoing provision which Clause 28 refers is to Clause 27 which sets out sub-clauses (a) to (n) setting out the different circumstances under which the Corporation would be at liberty at its entire discretion to terminate the agreement forthwith or at any time after the happening of the events specified in sub-clauses(a) to (n). One of the clauses that provides for termination is, when the distributor had involved himself in criminal offence. It was this clause which was invoked by the Indian Oil Corporation to terminate the contract. This termination was found to be bad as not supported by enough evidence.
6. The learned counsel for the Gas Agency Shri Bansal would argue that when the contract had been illegally terminated, the Arbitrator himself could not have directed the termination to be effected under Clause 28 and provide only for damages. The decision of the Hon'ble Supreme Court in Harbans Lal Sahnia's case according to him, was an authority for the position that the illegal termination shall at all times lead to restoring the parties to status quo ante. The Madras High Court's FAONo.3815 of 2009 -5- decision in D.Santhppan's case also reaffirms the same.
7. In my view, neither the decision of the Hon'ble Supreme Court in Harbans Lal Sahnia's case nor the decision in Madras High Court dealt with the applicability of Section 14 of the Specific Relief Act and the non-enforceability of a contract of agency. The reliefs which were granted in exercise of jurisdiction under Article 136 or under Article 226 when a direct challenge is made in the writ petition is wholly different from when a party seeks for enforcement of a particular contract which is terminated, before a Civil Court or arbitrator exercising his powers akin to Civil Court. Before the Arbitrator, the specific issue was whether even on a proof that the termination was bad, could the party complaining of illegal breach seek for restoration of the status quo ante. The Abritrator had correctly referred to the decision of the Hon'ble Supreme Court in Amritsar Gas Agency case that specifically dealt with the same situation of the non-enforceability of such contracts. In that case, the Hon'ble Supreme Court was dealing with a case of dispute of another Gas Agency with the Indian Oil Corporation and they were also referring to the effect of Clauses 27 and 28. While setting aside a direction for restoration of agency, the Hon'ble Supreme Court invoked Section 28 to measure the quantum of damages that would have been permissible and passed an order providing for damages for a month's notice. That was precisely what the Arbitrator had done. The Arbitrator's award was perfectly legal and justified and the intervention made by the impugned judgment was legally untenable. FAONo.3815 of 2009 -6-
8. Even apart from the reasoning found in the Arbitrator's award, there is yet another reason why the Gas Agency cannot obtain the relief of restoration of agency. An agent whose contract is unlawfully terminated can have no right to insist on the continuation of the contract, except under situations where the contract of agency is coupled with interest. The right which is protected under Section 202 of the Contract Act is a matter that would require specific pleading and evidence. No such attempt was made before the Arbitrator that there had been a case of agency coupled with interest. The relief claimed by the Gas Agency before the Arbitrator for restoration of the Agency was, therefore, not maintainable for that reason also.
9. The award of the Arbitrator is restored and the appeal filed by the Indian Oil Corporation succeeds. The order of the District Judge impugned in the appeal is set aside. There shall be however no directions as to costs.
(K.KANNAN) JUDGE 18.08.2009 sanjeev