Gujarat High Court
Indian Oil Corporation Ltd vs Surendra Filing Station & on 4 May, 2017
Author: Rajesh H.Shukla
Bench: Rajesh H.Shukla
C/FA/3216/2012 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
FIRST APPEAL NO. 3216 of 2012
With
SPECIAL CIVIL APPLICATION NO. 10252 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE RAJESH H.SHUKLA : Sd/
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1 Whether Reporters of Local Papers may be NO
allowed to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the
fair copy of the judgment ? NO
4 Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India or any NO
order made thereunder ?
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INDIAN OIL CORPORATION LTD....Appellant(s)
Versus
SURENDRA FILING STATION & 1....Defendant(s)
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Appearance:
First Appeal No.3216 of 2012 :
MR AKSHAY A VAKIL for the Appellant(s) No. 1
MR HARNISH V DARJI for the Defendant(s) No. 1 - 2
Special Civil Application No.10252
of 2013 :
MR HARNISH V DARJI for the Petitioner(s) No. 1
MR AKSHAY A VAKIL for the Respondent(s) No. 2
Rule served for the Respondent No.1.
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CORAM: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA
Date : 04/05/2017
COMMON ORAL JUDGMENT
1. First Appeal No.3216 of 2012 is filed by the appellantoriginal applicantIOC under Section 96 Page 1 of 23 HC-NIC Page 1 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT of the Civil Procedure Code as well as under
Section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act") being aggrieved and dissatisfied with the impugned judgment and order in Misc. Civil Application No.957 of 2010 passed by the Auxiliary Chamber Judge, City Sessions Court, Ahmedabad dated 31st March, 2012 on the grounds stated in the memo of appeal. It is contended inter alia that the impugned judgment and order is not a reasoned order and no reasons are assigned for not setting aside the order of the Arbitrator. It is contended that it is reproduction of the arbitration award. Further it has been contended that the Court below has not appreciated that the rod was inserted in dispensing unit and the opponent in its reply has not disputed the said fact and the onus was upon the opponent to prove that the said rod was not inserted for manipulating the delivery of the product or the dispensing unit. It is contended that the Court below has completely overlooked the fact that OILCO representatives had confirmed that the meter unit of all dispensing units were having additional spring, additional gear system, nuts Page 2 of 23 HC-NIC Page 2 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT etc. and the report was signed by the opponent without any protest. It is therefore contended that the findings and conclusion are contrary to the statutory provision and material and evidence on record. It is also contended that the Court below has failed to appreciate that the Arbitrator had no jurisdiction to give certain directions. It is also contended that the compensation could not have been awarded as the agreement specifically provides otherwise and, therefore, the present Appeal may be allowed.
2. Special Civil Application No.10252 of 2013 has been filed by the petitioner herein M/s. Surendra Filling Station, A proprietary Firm under Articles 14, 19(1)(g) and 226 of the Constitution of India praying inter alia for issuance of the writ of mandamus or any other appropriate writ, order or direction directing the respondent authority to hear and decide Appeal dated 19.08.2010 filed by the petitioner on the grounds stated in the memo of petition.
3. Heard learned advocate, Shri Akshay Vakil appearing for the Indian Oil Corporation Ltd. and learned advocate, Shri Harnish Darji appearing for Page 3 of 23 HC-NIC Page 3 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT M/s. Surendra Filling Station in both matters.
4. Learned advocate, Shri Akshay Vakil appearing for the appellantCompany has referred to the background of the facts as well as record and the proceedings and also the dealership agreement. He referred to Clauses 16, 36, 43 and 56 of the agreement clause and submitted that Clause - 16 provides that "no repairing shall be made" and Clause - 43 provides that "dealer undertakes to observe all directions, rules and regulations of the corporation as well as other authorities". He pointedly referred to Clause - 56, which reserves liberty to the Corporation to terminate the agreement on happening of any of the events as specified in detail. For that purpose, he referred to Clause 56(1), which provides, "56(i) If the Dealer shall deliberately contaminate or tamper with the quality or any of the Corporation's product."
5. Learned advocate, Shri Vakil submitted that therefore the dealership was suspended and the notice was given on 21.11.2006. He submitted that reply was also filed by the respondentdealer on 29.11.2006. Learned advocate, Shri Vakil submitted Page 4 of 23 HC-NIC Page 4 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT that in reply also, the respondentdealer has not disputed about the presence of the rod. He pointedly referred to Paragraph Nos.6 and 7 of the reply and submitted that such a rod was found inside the dispensing unit, which itself would suggest about the tampering and manipulation.
6. Learned advocate, Shri Vakil submitted that Marketing Discipline Guidelines, 2005 also provides for termination of the dealership. He again referred to the guidelines produced on record at Page No.85 of the paper book and emphasized Col.No.4, which reads as under, Sr. Nature of Irregularity MDG 2005 No. PENAL ACTION 1 xxx xxx xxx xxx xxx xxx 2 xxx xxx xxx xxx xxx xxx 3 xxx xxx xxx xxx xxx xxx 4 Additional / Unauthorised Termination fittings / gears found in the dispensing unit
7. He, therefore, submitted that the termination cannot be said to be illegal or erroneous. Learned advocate, Shri Vakil also referred to the impugned order and also award of the Arbitrator. He submitted that the Arbitrator has totally Page 5 of 23 HC-NIC Page 5 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT misdirected and exceeded jurisdiction. Learned advocate, Shri Vakil submitted that the Arbitrator has exceeded the jurisdiction and proceeded to discuss and decide about the subject matter, which was not forming part of the arbitration. He submitted that the compensation for three months is awarded without any justification or any provision in the dealership agreement. Learned advocate, Shri Vakil referred to and relied upon the judgment of the Hon'ble Apex Court in case of M/s. Trojan and Co. Vs. R.M. N.N. Nagappa Chettiar, reported in AIR 1953 SC 235 (Para No.22).
8. Learned advocate, Shri Vakil submitted that the MDG Guidelines provides for the arbitration. However he pointedly referred to the award and submitted that the reasons recorded by the Arbitrator cannot be believed and same have also been confirmed and accepted by the Court below. He, therefore submitted that the award may be quashed and set aside when the Arbitrator has exceeded jurisdiction. In support of his submission, he has referred to and relied upon the judgment of the Hon'ble Apex Court in case of Oil Page 6 of 23 HC-NIC Page 6 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., reported in AIR 2003 SC 2629. He emphasized that the Arbitrator has proceeded on the issue though it was not referred to for decision. Learned advocate, Shri Vakil submitted that if the Arbitrator has exceeded the scope and has gone beyond the terms of the contract of the arbitration, the award could be set aside on the ground of public policy. He also referred to and relied upon the judgment of the Hon'ble Apex Court in case of Jamnadas Hiralal Mendha Vs. State of Gujarat & Anr., reported in 1989 (1) GLH 459. He also referred to and relied upon the judgment in case of Indian Oil Corporation Ltd. Vs. Amritsar Gas Service & Ors., reported in (1991) 1 SCC 533 and emphasized the observation made particularly in Paragraph Nos.8 and 12. He submitted that the Arbitrator has passed an award for restoring the dealership though no such specific relief could be given as the contract is terminated and as it is based on the mutual agreement between the parties, it could not have been directed to restore the dealership. He has also referred to Section 14 of the Special Relief Act and submitted that it Page 7 of 23 HC-NIC Page 7 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT provides the contract, which cannot be specifically enforced and pointedly emphasized 14(c), which provides for "a contract which is in its nature determinable". He, therefore, submitted that the contract which is in its nature determinable cannot be enforced and, therefore, the Arbitrator could not have given such direction. He submitted that similarly no compensation could have been awarded. Learned advocate, Shri Vakil referred to and relied upon the judgment in case of E. Venkatakrishna Vs. Indian Oil Corporation & Anr., reported in JT 2000 (10) 558 and submitted that as the Arbitrator has exceeded jurisdiction and gone beyond the scope while awarding damages, it may be quashed and set aside. He also submitted that the petition is also filed under Article 226 of the Constitution of India and in view of the decision in the present appeal, it may not be maintainable as it may not survive.
9. Learned advocate, Shri Harnish Darji has referred to the papers and R&P and submitted that the appellantCompany has not produced any material before the Arbitrator or before the Court below Page 8 of 23 HC-NIC Page 8 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT with regard to the presence of the rod in the dispensing unit. He further submitted that it is made clear that it was for the puncture the tine and, therefore, say of the Company that it was for manipulating the dispensing unit, cannot be believed or accepted. Learned advocate, Shri Darji referred to the report dated 19.10.2006 by the appellantCompany. He submitted that the appellantCompany has relied upon such report but as could be seen from the report, seals are intact, the officer of the Weight and Measure Department has also examined and there is no adverse reported. Learned advocate, Shri Darji, therefore, submitted that even if the authorized person of MIDCO carried out repairing and investigation, note/report dated 08.02.2007 does not suggest about any manipulation. He emphasized that it only refers to the erratic working, which would not suggest tampering with the dispensing unit.
10. Learned advocate, Shri Darji submitted that the rod or the gear which is said to have been found in the dispensing unit by itself would not establish the charges for tampering with the unit.
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He also referred to Clauses - 38 & 39 of the dealership agreement to support his submission. Learned advocate, Shri Darji submitted that the Company has failed to establish by any reasonable document and material that the respondent has committed any irregularity, which would justify the exercise of discretion under the dealership agreement or that MDG Guidelines. Again he referred to the background and submitted that the officer of Weight & Measure Department had checked the unit and found in order on 10.05.2006 and, thereafter on 20.05.2006, the representative of the Company and the representative of the Weight & Measure Department have also checked the unit and it was in order. He submitted that on 01.01.2007, while passing termination order, there was no such material or the report, on the basis of which, the dealership could have been terminated on the ground of any mischief committed by the respondentdealer. He, therefore, submitted that whole basis or foundation for taking such decision for termination of the dealership was not available and without any relevant material, the notice was issued and, thereafter, the agreement Page 10 of 23 HC-NIC Page 10 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT is terminated and, therefore, it is arbitrary.
11. Learned advocate, Shri Darji referred to the Arbitration Act, Chapter - VII, Section 34, which provides for setting aside the award. He submitted that scope of interfering and setting aside the award of the Arbitrator is well defined. For that purpose, eh referred to Section 34 of the Arbitration Act and submitted that the award could be set aside in view of the provision of Section 34 of the Arbitration Act. He emphasized that Section 34 of the Arbitration Act has put the limitation on the exercise of the discretion for setting aside the award of the Arbitrator only on the ground specified in Section 34 of the Arbitration Act. He therefore submitted that if the ground as specified in Section 34 of the Act are not established, the award of the Arbitrator may not be set aside. He submitted that as the Arbitration Act is a special statute providing for setting aside the award of the Arbitrator, it will be guided by such statutory provision of Section 34 of the Arbitration Act and same limitations for setting aside the award would be applicable. In support of his submission, he referred to and Page 11 of 23 HC-NIC Page 11 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT relied upon the judgment in case of Trustees of the Port of Madras Vs. Engineering Constructions Corporation Ltd., reported in (1995) 5 SCC 531, in case of G. Ramachandra Reddy & Co. Vs. Union of India, reported in (2009) 6 SCC 414 and in case of Indu Engineering and Textiles Vs. Delhi Development Authority, reported in (2001) 5 SCC 691.
12. In rejoinder, learned advocate, Shri Vakil submitted that the Arbitrator has exceeded the jurisdiction and the terms of the contract. He submitted that Arbitrator was not called upon to decide the aspect of the damage and the award is contrary to the provision of law. He submitted that the issue about the irregularity in handling the dispensing unit and the policy of the appellant, which is a public policy, could not have been interpreted in a narrow sense. He, therefore, submitted that the challenge to the award under the Special Civil Application may not be permitted and it was filed only to enlarge the scope.
13. In view of these rival submissions, it is required to be considered whether the present First Appeal Page 12 of 23 HC-NIC Page 12 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT deserves consideration.
14. As could be seen from the background of the facts, the issue is with regard to the exercise of the discretion under the dealership agreement for termination on the ground or the events mentioned in Clause56(i). Clause56(i) of the dealership agreement provide, "56. Notwithstanding anything to the contrary herein contained, the Corporation shall be at liberty to terminate this Agreement forthwith upon or at nay time after the happening of any of the following events, namely :
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) xxx xxx xxx
(d) xxx xxx xxx
(e) xxx xxx xxx
(f) xxx xxx xxx
(g) xxx xxx xxx
(h) xxx xxx xxx
(i) If the Dealer shall deliberately contaminate or tamper with the quality of any of the Corporation's product."
15. Thus the right is reserved to the appellant Corporation for termination of the dealership agreement as it is a contract between the parties and it cast mutual obligation upon the parties. In Page 13 of 23 HC-NIC Page 13 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT other words, if one of the parties to the agreement commits breach of the terms and conditions, other party like the appellant herein could exercise such option. The Marketing Discipline Guidelines, 2005 laid down detailed procedure including the observation of the statutory and other regulations. ChapterIV of Marketing Discipline Guidelines, 2005 referred to the maintenance of the Company equipment at the retail outlet including dispensing unit. Clause 6.1.5 provides, 6.1.5 ADDITIONAL / UNAUTHORISED FITTINGS / GEARS FOUND IN DISPENSING UNITS Any mechanism / fitting/ gear found fitted in the dispensing unit with the intention of manipulating the delivery, Penal action to be taken as given in Appendix 1.
16. Appendix1 provides for termination of the dealership if the irregularity is regarding additional / unauthorised fittings / gears found in the dispensing unit. Therefore it is a matter of contractual obligation between the parties where the dealer is cast an obligation to adhere to the norms.
17. In the facts of the case, as discussed Page 14 of 23 HC-NIC Page 14 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT hereinabove, the rod/gear is found admittedly in the dispensing unit. The say of the respondent dealer that it was for the purpose of puncture 2T pouch cannot be readily accepted. Assuming that it is required for such purpose, it could have been kept outside and it could not have been in the dispensing unit, which is sealed. There is no explanation as to how such rod or gear has been found in the dispensing unit. The submission made with much emphasis referring to the dates that dispensing unit was inspected and examined by the representative of the Weights & Measure Department and also by the officers of the Company and it was found in order and, therefore, it cannot be said that any mischief was committed, is misconceived. The inspection by the representative of the Weights & Measure Department or the officer is one thing and finding of foreign object or rod and gear in the dispensing unit, which is sealed is another aspect. As there is no explanation or justification as to how such foreign object could be inside the dispensing unit, it would clearly suggest about the irregularity.
18. Further the panchnama, which is placed on record, Page 15 of 23 HC-NIC Page 15 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT clearly establishes the presence of such rod or gear in the dispensing unit and the panchnama is signed by the witnesses and the representatives or the officer of the appellant and the respondent. The report made at the time of checking clearly indicates that the functioning of the dispensing unit is erratic delivery. This itself would suggest that the rod or gear had some effect on the functioning of the dispensing unit. The show cause notice is admittedly given to the respondent pointing out violation of the dealership agreement and intimating that why the dealership agreement should not be terminated. In response thereto, the respondentdealer has also given reply. In the reply, it is stated, "6. Now, by your above letter we are required to Show Cause for the Oil Pouch Puncturing stick/spoke use by pump attended and placed at a Particular position in the equipment setup. The fact is in practice for several years. All Officials concerned are aware of this position of oil pouch Puncturing spoke including Weights and Measure Authority and equipment repairs and maintenance staff employed by company. (IOC/OILCO)
7. In Case this is objectionable now, after Page 16 of 23 HC-NIC Page 16 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT several years, we are ready and prepared to rectify the position and change the same as can be advise to us by company/OILCO officials and weights and measures Authority.
................. During the Riots, we were verbally advised by the police not to keep razor blade, knife or scissors ................."
19. There is also reference to less delivery. It is in this background, the termination order came to be passed dated 01.01.2007. It also records that delivery was found correct without inserting wire rod and shortage of 300 ml petrol per 5 ltrs. was found. It is in this background, the judgment and award which has been made Rule of the Court requires a closer scrutiny. In the impugned judgment passed in Misc. Civil Application No.957 of 2010 by the Auxiliary Chamber Judge, City Sessions Court, Ahmedabad, the observations have been made in Paragraph No.21 referring the natural justice and violation of the guidelines without addressing the issue with regard to the breach of the condition of the dealership agreement, which in turn would enable the appellant to exercise the option of termination of the dealership agreement.
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Similarly the issue about the finding of the foreign object or the wire rod/gear with the effect on functioning of the dispensing unit has not been considered at all and it has been observed, "............ the submission that the applicant was also found with malpractice and misconduct and also acting against the guidelines and terms of the contract, is not an issue at present, and therefore, the finding to that aspect are not required to be given though the sole arbitrator has considered the same in detail."
20. This itself suggest about the manner in which the proceedings have progressed before the Court below while making award as a Rule of the Court, which are thoroughly misdirected. Further while referring to the scope of jurisdiction of the Arbitrator, again the discussion has been made in Paragraph No.22 of the impugned judgment observing that, "22. So far as the grievances of the respondent as to the direction to the respondent to pay the compensation to the applicant is concerned, i.e. Rs.75,000/ per month for three months on average commission basis purported to have been Page 18 of 23 HC-NIC Page 18 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT earned and the loss incurred by the applicant is concerned, I do not find any irregularity is committed by the sole arbitrator, as the respondent has not given any opportunity to the applicant, and therefore, as per the terms and conditions of the agreement, the respondent's officials are duty bound to give three months' period notice, but due to the high headed and arbitrary action on the part of the respondent, the applicant was left with no consequence except to hand over the possession of the RO to the respondent before the expiry of three months. Hence, the award as to the compensation on the basis of the guidelines and terms and conditions, passed by the sole arbitrator does not seem to be improper and against the provisions of law."
21. Thus it refers to the aspect of scope of arbitration proceeding before the Arbitrator and whether he has exceeded his terms of the reference was required to be considered. It has been observed that no irregularity is committed by the sole Arbitrator and the observation has been made that the respondent i.e. the appellantCorporation has not given opportunity to the applicant and proceeded to award compensation on the basis of Page 19 of 23 HC-NIC Page 19 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT the guidelines and the terms and conditions. It is required to be stated that the guidelines and the terms and conditions or the dealership agreement nowhere provide for the compensation. It is in this background, the impugned judgment and order confirming the award of the Arbitrator cannot be sustained.
22. The Hon'ble Apex Court in a judgment in case of Rajasthan State Mines and Minerals Ltd., Vs. Eastern Engineering Enterprises & Anr., reported in AIR 1999 SC 3627 referring to the provision of the Arbitration Act, 1940 has made observation, "An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency."
23. Therefore as referred to in Halsbury's Laws of England, Volume II, 4th Edn., Para No.622, "A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from Page 20 of 23 HC-NIC Page 20 of 23 Created On Mon Aug 14 16:21:17 IST 2017 C/FA/3216/2012 JUDGMENT which he has derived his authority vitiates the award."
24. Therefore the provision of Section 34 of the Arbitration Act, 1996 provides application for setting aside arbitral award. Section 34(2)(iv) provides, "(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:"
25. Thus the Arbitrator is not required to decide the aspect of compensation. It is well settled that the compensation in terms of money or damages has to be arrived at based on necessary material and evidence and could not have been awarded without any justification or material. Not only that, as discussed, the award does not focus on the issue of the irregularity in the dispensing unit and has proceeded on the erroneous hypothesis.
26. The violation of the agreement or the clause of the agreement referred to MDG Guidelines and it has been observed that it was necessary to establish the presence of spurious in the meter of dispensing unit, which is thoroughly misconceived.
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It is in this background, the submissions made by learned advocate, Shri Vakil deserves to be accepted.
27. Further, the dealership agreement referred to the mutual rights and obligation between the parties and the constitutional limitation of Article 14 of the Constitution of India would not be attracted as it is only at the threshold when there is complaint with regard to arbitrariness, discrimination or denial of opportunity. However when the parties entered into a contract, they are governed by the contractual obligation and it is directly in the realm of private law rights governed by the general law relating to contracts. Therefore, there cannot be any restoration of the agreement as per the Specific Relief Act providing for nonenforceability of certain types of contracts.
28. The submission that any material to establish the tampering with dispensing unit is not found and, therefore, very basis for termination is erroneous cannot be accepted in light of the findings and discussion made hereinabove. Therefore, the present First Appeal deserves to be allowed.
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29. In the circumstances, First Appeal No.3216 of 2012 is allowed. The the impugned judgment and order in Misc. Civil Application No.957 of 2010 by the Auxiliary Chamber Judge, City Sessions Court, Ahmedabad dated 31.03.2012 making the award of the Arbitrator as the Rule of the Court is hereby quashed and set aside.
30. In view of the order passed in First Appeal No.3216 of 2012, Special Civil Application No. 10252 of 2013 does not survive and stands disposed of accordingly. Rule is discharged. Interim relief, if any, stands vacated.
Sd/ (RAJESH H.SHUKLA, J.) Gautam Page 23 of 23 HC-NIC Page 23 of 23 Created On Mon Aug 14 16:21:17 IST 2017