Madras High Court
M/S.Raju And Sons vs The Deputy General Manager on 24 March, 2022
Author: M.Sundar
Bench: M.Sundar
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
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Arb O.P.(Com. Div.)No.135 of 2022
(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]. 2/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022
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. 3/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022
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?4/20
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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, 5/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 6/20 https://www.mhc.tn.gov.in/judis 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 7/20 https://www.mhc.tn.gov.in/judis 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 10/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 11/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 12/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 13/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 14/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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, 15/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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.16/20
https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 17/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 18/20 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.135 of 2022 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 19/20 https://www.mhc.tn.gov.in/judis 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 20/20 https://www.mhc.tn.gov.in/judis