Supreme Court of India
INDIAN OIL CORPORATION LTD. AND ORSversusM/S. SATHYANARAYANA SERVICE STATION & ANR
- Citation
- 2023 INSC 507
- Decided
- 9 May 2023
- Disposal
- Appeal(s) allowed
- Bench
- K M JOSEPH
Holding
The High Court erred; the arbitral award in favour of IOC must be restored and the court cannot modify the award or grant additional relief after setting it aside.
Summary
The Indian Oil Corporation (IOC) entered into a 15‑year petrol pump dealer agreement with Sathyanarayana Service Station, which contained a clause allowing either party to terminate the agreement by giving three months' notice. The dealer gave a notarised notice to withdraw, which IOC accepted; the dealer later attempted to retract the withdrawal, but IOC took possession of the outlet and awarded it to a new dealer. An arbitrator upheld IOC's position and the award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The District Court dismissed the challenge, but the Karnataka High Court set aside the award, restored the dealership to the dealer and allowed damages. The Supreme Court held that the High Court erred in interfering with the award, that clause 3 does not require acceptance for termination, and that a court cannot modify an award after setting it aside. Consequently, the award was restored and the appeals were allowed.
Issues considered
- The scope of a court’s power under Section 34 (and Section 37) of the Arbitration and Conciliation Act, 1996 to set aside and modify an arbitral award.
- Whether clause 3 of the dealer agreement requires the acceptance of the notice of termination for the contract to be terminated.
- Whether the High Court could grant further relief (restoration of the dealership and damages) after setting aside the award.
- Whether the arbitrator’s construction of the contract was perverse or beyond his jurisdiction.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 34, s. 36, s. 37
- Indian Contract Act, 1872s. 5
Subjects
ArbitrationSection 34Arbitral award setting asideContract termination clauseDealer agreementAcceptance of noticeSupreme Court interpretationRestoration of dealership
Judgment
682 [2023]
SUPREME COURT 5 S.C.R. 682
REPORTS [2023] 5 S.C.R.
A INDIAN OIL CORPORATION LTD. AND ORS.
v.
M/S. SATHYANARAYANA SERVICE STATION & ANR
(Civil Appeal No.3533 of 2023)
B MAY 09, 2023
[K. M. JOSEPH AND B. V. NAGARATHNA, JJ.]
Arbitration and Conciliation Act 1996: s. 34 – Application
for setting aside arbitral award – Appellant-IOC entered into petrol
pump dealer agreement with the first respondent – After three years,
C
the first respondent sought to withdraw from the dealership and the
said request was notarised, and thereafter accepted by the appellant
– Subsequently, first respondent expressed his intention to withdraw
the resignation from the dealership, however, the same was not
accepted – IOC took possession of the petroleum outlet and new
D dealer was awarded the dealership – First respondent challenged
the same – Arbitration award in favour of the appellant – First
respondent then filed arbitration suit u/s 34 which was dismissed –
However, the High Court set aside the arbitration award and directed
the first respondent be restored the dealership – On appeal, held:
High Court erred in proceeding to order restoration of the dealership
E
to the first respondent after setting aside the award and by leaving
it open to the first respondent to claim damages – Court cannot
after setting aside the award, proceed to grant further relief by
modifying the award –First respondent indeed invoked clause (3) –
Clause (3) did not provide for resignation from dealership – It
F provides only for termination of the agreement – First respondent
indicated in letter that it was ‘withdrawing’ from the dealership –
Proceeding on the footing that a premature termination of the
agreement would need acceptance, the view taken by the arbitrator
cannot be characterised as being perverse – However, the High
Court acted illegally in interfering with the finding of the arbitrator
G
found acceptable to the District Judge u/s. 34 that there was
acceptance, thus, the impugned judgment set aside.
Allowing the appeals, the Court
HELD: 1.1 The first respondent cannot be permitted to
H contend that termination of the dealership cannot be brought
682
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 683
SATHYANARAYANA SERVICE STATION
about by giving a three months’ notice during the first 15 years A
of the dealership. Such an interpretation was not placed for the
consideration of the Arbitrator. It is not even raised before the
District Court or the High Court. The first respondent is calling
upon this Court in a case arising under the Act to place a wholly
novel interpretation. It is not as if the contention canvassed is
B
the only view possible. In fact, the conduct of the first respondent
is premised on the interpretation which leaves it open to the
parties to terminate the contract by giving three months’ notice
even within the first 15 years of the dealership. [Para 18][696-C-
F]
1.2 On a perusal of clause (3), in fact, it occurred that there C
is a term in a contract which expressly does not require any
acceptance of the other party for the premature termination of
the contract by giving a notice of three months. This Court would
break down the clause as meaning that it contemplated
determination of the agreement by either party (words lifted from
D
the contract as such) by giving three months notice to the other
party with the intention to terminate the agreement. The clause
provides that upon the expiration of such notice, the agreement
and the licence granted would stand cancelled and revoked. There
are no words even faintly suggesting acceptance of a notice of
intention to terminate the agreement as being indispensable for E
the determination of the agreement. The ball is set rolling by the
issuance of the notice and the process appears to successfully
culminate in the agreement and the licence granted under the
agreement being cancelled or revoked. [Para 19][696-F-H; 697-
A]
1.3 Though such a view appears to be the correct F
construction of the agreement, the counsel, appearing for the
first respondent would point out that IOC and what is more, even
the arbitrator, and therefore the District Court and the High court
have all proceeded on the basis that acceptance of the notice of
termination alone suffices. In view of the fact that this appears to
be the case, the matter is to be considered on the basis that G
acceptance is necessary. [Para 20][697-A-C]
1.4 There is no dispute that the first respondent addressed
communication dated 25.09.2006. It is also indisputable that the
officers of the IOC insisted that the first respondent must notarise
the notice. A meeting in this regard did take place. The notice H
684 SUPREME COURT REPORTS [2023] 5 S.C.R.
A came to be notarised and what is more, received on 16.11.2006.
A perusal of the notice dated 25.09.2006 clearly indicates that
the first respondent has clearly indicated that it gave the version
that they have shifted to Bangalore for their childrens education,
and what is more, therefore, they were not able to look after the
dealership. They wished to “withdraw from the dealership and
B
appoint new R.O. dealers before three months as per the
agreement”. In other words, there cannot be even a shred of
doubt that the first respondent indeed invoked clause (3). The
words used may appear to be inelegant. However, the conduct
leaves no doubt, and what is more, even the first respondent
C does not have a case that the action was not traceable to the
provisions of clause (3). On the expiry of three months, the
inexorable consequences provided in clause (3) would have
ensued. However, since it is proceeded on the basis that IOC
must have signified its assent for the notice to bear fruit, on
18.11.2006, the second appellant in the appeal filed by IOC
D
referred to the notarised letter dated 03.10.2006 which was
received on 16.11.2006. IOC has taken note of the intention of
the first respondent to resign from the dealership. Thereafter,
the first respondent was requested to continue operation till
arrangements were made. Lastly, the letter ends with expression
E of gratitude for the association of the first respondent with the
IOC and wishing both the partners the very best in their future
endeavours. From the terms and the tone of the letter and the
circumstances, the arbitrator who is the chosen judge of the facts
and the merits concluded that there was acceptance of the notice.
It could be open to debate whether there was sufficient articulation
F
of the acceptance. Words such as “have taken note of your
intention to resign from our dealership” could perhaps have been
supplanted with the benefit of hindsight with different words. But
the question which arises is when the letter is read in the context
of the facts as a whole, particularly, in the light of the jurisdiction
G of the Court to interfere with a finding of the arbitrator within his
jurisdiction, the High Court palpably erred. Clause (3) permits
either party to bring about a premature termination of the contract.
By giving a notice of three months, if the notice is the IOC, IOC
is enabled to make arrangements so that essential services
provided by a dealer do not suffer abrupt disruption. In other
H
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 685
SATHYANARAYANA SERVICE STATION
words, alternate arrangements could be made. Likewise, a A
termination by IOC would put the dealer on alert and it can
appropriately take steps towards arranging its affairs in a fair
manner. [Para 21][697-C-H; 698-A-C]
1.5 Proceeding on the footing that in the above sense a
premature termination of the agreement would need acceptance, B
the view taken by the arbitrator in the facts, cannot be
characterised as being perverse. It is undoubtedly a plausible
view. It closes the door for the court to intervene. The finding of
the arbitrator cannot be described as one betraying “a patent
illegality”. [Para 22][698-D-E]
C
1.6 The High Court proceeded by adverting to draw a
distinction between “termination of the agreement” and
“resignation from dealership”. The High Court also proceeded
on the basis that since the agreement does not prohibit the first
respondent from withdrawing the case, the case has to be tested
on the anvil of the Contract Act. A merit review was undertaken D
to find that the offer of the first respondent to ‘resign’ was not
accepted by letter dated 22.11.2006. [Para 23][698-E-F]
1.7 The clause in question did not provide for resignation
from dealership. Indeed, it provides only for termination of the
agreement. What the first respondent has indicated in letter dated E
25.09.2006, the contents of which have been reiterated in the
notarised version dated 03.10.2006 and received on 16.11.2006
by the second appellant, is that the first respondent was
‘withdrawing’ from the dealership. The High Court cannot be
supported on the basis that the clause in question did not F
contemplate resignation. In fact, though not in all cases, a
resignation may assume effect only upon acceptance by the
employer. What, on the other hand, is contemplated in clause (3)
is a notice of three months terminating the contract by either
party. [Para 24][698-F-H]
G
1.8 It was pointed out that acceptance by the management
of IOC actually took place on 07.12.2006 and not on 22.11.2006.
However, in the light of communication dated 18.11.2006,
essentially recognizing and in substance conveying acceptance
H
686 SUPREME COURT REPORTS [2023] 5 S.C.R.
A or approval; first respondent cannot draw strength from the same.
IOC has a case that it was for taking the matter forward in the
matter of re-awarding the dealership that the decision dated
07.12.2006 was made. More importantly, the communication
purporting to take back the withdrawal was given by first
respondent on 11.12.2006 which is after 07.12.2006. [Para
B
25][699-A; 699-E-F]
1.9 Proceeding on the basis that acceptance is necessary,
the High Court in a proceeding under Section 37 acted illegally
in interfering with the finding of the arbitrator and what is more,
a finding found acceptable to the District Judge under Section 34
C that there was acceptance vide letter dated 18.11.2006. [Para
26][699-G-H]
1.10 The High Court also erred in proceeding to order
restoration of the dealership to the first respondent after setting
aside the award and going further by leaving it open to the first
D respondent to claim damages. The Court cannot, after setting
aside the award, proceed to grant further relief by modifying the
award. It must leave the parties to work out their remedies in a
given case even where it justifiably interferes with the award.
Thus, the impugned judgment is set aside and the award is
E restored. [Para 27, 28][700-A-C]
Project Director, National Highways No. 45 E and 220
National Highways Authority of India v. M. Hakeem
and another (2021) 9 SCC 1 – relied on.
Ssangyong Engineering & Construction Company
F Limited v. National Highway Authority of India (NHAI)
(2019) 15 SCC 131 : [2019] 7 SCR 522; Punjab State
Civil Supplies Corporation Ltd. and Another Versus
Ramesh Kumar and Company and Others 2021 SCC
Online SC 1056 – referred to.
G Case Law Reference
[2019] 7 SCR 522 referred to para 14
(2021) 9 SCC 1 relied on para 27
CIVIL APPELLATE JURISDICTION : Civil Appeal No.3533
H of 2023.
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 687
SATHYANARAYANA SERVICE STATION
From the Judgment and Order dated 15.01.2021 of the High Court A
of Karnataka at Bengaluru in MFA No.4450 of 2011.
With
Civil Appeal No.3534 of 2023
Devadatt Kamat, Sr. Adv., Nishanth Patil, Ayush P Shah, Harsh B
Pandey, Revanta Solanki, Vikaram Mehta, Ms. Rashi Ram Pal, Vikas
Mehta, Advs. for the Appellants.
Shailesh Madiyal, Rajan Parmar, Vinayaka S Pandit, Ms. Rakhi
M, Akshay Kumar, Ms. Divija Mahajan, Advs. for the Respondents.
The Judgment of the Court was delivered by C
K. M. JOSEPH, J.
1. Leave granted.
2. In Civil Appeal arising out of SLP(C) 5698 OF 2021, the
appellants are the Indian Oil Corporation Ltd., (hereinafter referred to D
as “IOC”, for short), the Chief Divisional Retail Sales Manager of the
first appellant, Bangalore and the Chief Divisional Retail Sales Manager
of the Mangalore Division. The second respondent in the said appeal is
one Smt. M.P. Parvati, referred to as new dealer, who is the appellant in
the other appeal, namely, civil Appeal arising out of SLP(C) 5591 OF
2021. E
THE FACTS
3. On 31.10.2003, IOC entered into petrol/hsd pump dealer
agreement with the first respondent. Clause (3) of the agreement read
as follows: F
“(3) The Agreement shall remain in force for fifteen year from
day of 13th Oct 2003 and continue thereafter for successive periods
of five year each until determined by either party by giving three
months notice in writing to the other of its intention to termination
this agreement and upon the expiration of any such notice this
G
Agreement and the Licence granted as aforesaid shall stand
cancelled and revoked but without prejudice to such termination
provided that nothing contained in this clause shall to the rights of
either party against the other in respect of any matter or thing
antecedent to such termination Provided that nothing contained in
H
688 SUPREME COURT REPORTS [2023] 5 S.C.R.
A this clause shall to such prejudice the rights of the Corporation to
terminate this Agreement earlier on the happening of the events
mentioned in Clause 56 of this Agreement.”
4. On 25.09.2006, the first respondent addressed the following
communication to the second appellant:
B “Date: - 25-09-2006
To,
The Chief Divisional Retail Sales Manager
Indian Oil Corporation Limited
Marketing Division, Bangalore Divisional Office,
C
Indian Oil Bhavan # 29,
P. Kalinga Rao Road, (Mission Road)
Bangalore - 560027.
Dear sir,
D Sub : With drawl from R.O. Dealership
Ref: Your Letter No. BD0/242 dated 23rd Oct, 2003
With reference to the above subject we are very grateful to you
and IOC family members for giving us support and cooperation
for all these years for running the R.O.
E I would like to bring to your kind notice, that we have shifted to
Bangalore for our children’s education. Hence, we are not able to
look after the R.O.
Hence, kindly withdraw from R.O. dealership and appoint new
R.O. dealers before three months as per our agreement Dt: 31st
F Oct. 2003.
Hope you will consider our humble request and do the needful.
Thanking you,
Yours faithfully,
For SRI SATYANARAYANA SWAMY SERVICE STATION
G (P.S. SURESH) (JYOTI SURESH)
Partner Partner
CC To : The Sales Officer Mysore
//TRUE TYPED COPY//”
H
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 689
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
5. It is not in dispute that on 30.09.2006 there was a physical A
interaction in the course of which IOC insisted that the request of the
first respondent be notarised. There is also no dispute that a notarised
version of letter dated 25.09.2006 was received on 16.11.2006. It was
apparently notarised earlier on 3.10.2006. A reply was sent to the same
dated 22.11.2006 by the second appellant. It reads as follows:
B
“November 22, 2006
Regd. Post A.O.
Shri. P. S. Suresh & Smt Jyothi Suresh Partners
Sri. Sathyanarayanaswamy Service Station
C
Mysore -Bantwal Road
Periyapatna 5 71107
MYSORE DISTRICT
Dear sir,
SUBJECT : Resignation from Dealership D
This has reference to the notarized letter dated 3rd October 2006
received by our office on 16th November 2006 informing us of
your intention to retire from our retail outlet dealership.
This notarized letter sent by you, with reference to the recognition E
letter sent by us to you vide reference BDO : 242 dated 23. 10.2003
along with the dealership agreement recognizing both of you as
the dealers of our ‘A’ site retail outlet at periyapatna, run by you
under the name and style M/s. Sathyanarayanaswamy Service
Station.
F
As stated in your letter, we have taken note of your intention to
resign from our dealership. We request you to continue operation
till we make an alternative arrangement.
We thank you for your association with our organization and wish
you both all the very best in your future endeavours.
G
Thanking you,
Yours faithfully,
For INDIAN OIL CORPORATION LIMITED
Samson Chacko H
690 SUPREME COURT REPORTS [2023] 5 S.C.R.
A Chief Divisional Retail Sales Manager
//TRUE TYPED COPY//”
6. Next, we must notice letter dated 11.12.2006 on behalf of the
partners of the first respondent to the second appellant. It reads as follows:
B “Date: -11-12-2006
To,
The Chief Divisional Retail Sales Manager
Indian Oil Corporation Limited
Marketing Division, Bangalore Divisional Office,
C
Indian Oil Bhavan # 29,
P. Kalinga Rao Road, (Mission Road)
Bangalore.
Dear sir,
D I would like to bring to your kind Notice, that I have sent the R.O.
Dealership withdrawal letter (Notarized) due to unavoidable
circumstances.
But I want to take back the withdrawal from the Dealership.
E I am extremely sorry for the trouble and inconvenience caused.
But I will assure you sir, that in the future we will run the outlet
smoothly without giving you any problems.
Hope you will consider my humble request and do the needful.
Thanking you,
F
Yours faithfully
CC :- To The Sales Officer,
Mysore,
G For Satyanarayana Swamy Service Station
PARTNERS
//TRUE TYPED COPY//”
7. On 21.12.2006, we find the following communication addressed
by the second appellant on behalf of the IOC to the first respondent:
H
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 691
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
“BY RPAD A
st
December 21 , 2006
MIS. Sri Satyanarayanaswamy Service Station
Indian Oil Dealer
Mysore - Bantwal Road B
Periyapatna - 571107.
Mysore Dist.
Dear Sir,
Sub : Withdrawal of resignation
C
We have for reference your letter on the subject dated 18/12/
2006, withdrawing your resignation from our Dealership.
You had initially tendered your resignation on 25/09/2006. This
was once again confirmed with you by the undersigned on 30/09/
2006. On your confirmation, you were asked to submit a notarized D
resignation letter. Thereafter, you withdrew your resignation, and
once again on 16.11.2006, you submitted a resignation letter duly
notarized on 03/l 0/2006.
On receipt of the above, we sent you a letter by RP AD accepting
your resignation. Thereafter, you visited our office on 22/11/2016 E
along with your father, wherein you once again upheld your decision
to resign as you were presently settled at Bangalore and you could
not concentrate in your RO at Periyapatna. This was despite your
father’s opposition to your point of view.
Based on your notarized resignation and personal confirmations,
F
we have obtained our Management’s approval for accepting your
resignation. We regret to inform you that your request to withdraw
the resignation cannot be considered at this stage, due to the above-
mentioned reasons.
Thanking you,
G
Yours faithfully,
For INDIAN OIL CORPORATION LIMITED
(Samson Chacko)
Chief Divisional Retail Sales Manager H
692 SUPREME COURT REPORTS [2023] 5 S.C.R.
A //TRUE TYPED COPY//”
8. IOC took possession of the Petroleum Outlet on 23.12.2006.
Thereafter, the new dealer came to be awarded the dealership on
28.12.2006. An appeal was carried by the first respondent before the
General Manager of the IOC, Karnataka. The appeal came to be
B dismissed on 02.04.2007. This led to matter being referred to arbitration.
The Sole Arbitrator by award dated 15.01.2009 found inter alia that
“inasmuch as the IOC and its officers had communicated the acceptance
of the claimant’s resignation of the dealership vide their letter dated
22.11.2006, which brings the contract between both parties to an end,
their rejection of the claimant’s subsequent request dated 11.12.2006 for
C
withdrawing the resignation was in accordance with law”. In regard to
the question as to whether the action of the first respondent in withdrawing
the resignation from the dealership by letter dated 11.12.2006 was in
accordance with law, it was found that acceptance of the resignation
having been conveyed on 22.11.2006, the action of the first respondent
D in withdrawing was not in accordance with law. In regard to the issue
whether the first respondent had withdrawn the notice of resignation
within the time as prescribed in clause (3) of the Memorandum of
Agreement, it was found as follows:
“Clause 3 of the Memorandum of agreement does not specifically
E mention a time limit for withdrawal of resignation. The notice
period of 3 months mentioned in the contract is only the outer limit
by which time the party who gets the notice have to make their
alternate arrangements. At any time during the notice period, the
recipient party can convey acceptance thereby bringing the
contract between the parties to an end. Moreover, Section 5 of
F
the Indian Contracts Act states that a proposal may be revoked at
any time before the communication of it’s acceptance, but not
afterwards. Since the Respondents have communicated their
acceptance of the resignation of the Claimant vide their letter
dated 22.11.2006, the Claimant’s subsequent letter dated
G 11.12.2006 requesting for withdrawing the resignation letter is not
in accordance with law. Hence the issue as to whether the
Claimants have withdrawn their resignation within the time limit
has no relevance.”
(Emphasis supplied)
H
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 693
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
9. The arbitrator further found that the Letter of Intent being issued A
in favour of the new dealer was not flawed. Answering all other issues
which need not detain us against the first respondent, the award was
passed. The first respondent knocked at the doors of the Principal and
Sessions Judge, Mysore under Section 34 of Arbitration & Conciliation
Act, 1996 (hereinafter referred to as “the Act”). The arbitration suit
B
under Section 34 of the Act was dismissed.
10. By the impugned order in an appeal carried by the first
respondent, the High Court has set aside the award as also the order
passed by the court under Section 34. Still further, the High Court directed
that the first respondent shall be restored the dealership within three
months from the date of the receipt of the certified copy of the judgment C
failing which the first respondent was held entitled to seek execution of
the judgment and also seek necessary damages from IOC and its officers.
11. It is this judgment which has led to the filing of the two appeals.
Apart from the IOC and its officers, impugning the order of the High
Court the new dealer, namely, M.P. Parvati has filed the other appeal. D
12. We heard Shri Vikram Mehta, learned counsel appearing on
behalf of the appeal filed by the IOC. We also heard Shri Devadatt
Kamath, learned senior counsel appearing on behalf of the new Dealer.
Next, we heard Shri Shailash Madiyal, learned counsel on behalf of the
first respondent. E
13. Shri Vikram Mehta, learned counsel for the IOC would submit
that the High Court has overstepped the well settled limits set by a catena
of decisions in the matter of overturning an arbitration award. He took
us to the correspondence and also the conduct of the first respondent to
contend that the first respondent wanted to terminate the contract as is F
self-evident by sending the notice dated 25.09.2006. Upon being told
that the communication must be notarised, it was got notarised on
03.10.2006 and it was received by the second appellant on 16.11.2006.
The same was accepted on 18.11.2006. The Arbitrator has entered
findings on the above lines. It is a plausible view. The District Judge in G
proceedings under Section 34 had found the award invulnerable.
Therefore, even on a different view being possible, the High Court acted
illegally in interfering with the award. He would, in fact, submit that the
view taken by the arbitrator was in fact, the right view. The expression
of words conveying the best wishes for the partners of the first respondent
H
694 SUPREME COURT REPORTS [2023] 5 S.C.R.
A apart from the penultimate paragraph in letter 18.11.2006 is harped upon.
The High Court, it is pointed out, has proceeded to apply principles of
law which may not be apposite in the context. He would submit that the
findings of the arbitrator cannot certainly be described as perverse. He
would also submit that the High Court has clearly acted illegally in not
merely setting aside the award but even proceeding to modify the award
B
which is wholly beyond its power. In other words, he would point out the
direction by the High Court to restore the dealership to the first respondent
as being palpably illegal.
14. Shri Devadatt Kamat, learned senior counsel appearing on
behalf of the new dealer would submit that the conduct and
C correspondence resorted to by the first respondent would reveal that it
was carefully thought out. In other words, it is not a case where there
was any coercion or other vitiating element which drove the partners to
invoke clause (3). He would refer to the judgment of this Court in
Ssangyong Engineering & Construction Company Limited v.
D National Highway Authority of India (NHAI)1, Therein, he emphasised
the following statement:
“40. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paras 42.3 to 45 in Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
E SCC (Civ) 204] , namely, that the construction of the terms of a
contract is primarily for an arbitrator to decide, unless the arbitrator
construes the contract in a manner that no fair-minded or
reasonable person would; in short, that the arbitrator’s view is not
even a possible view to take. Also, if the arbitrator wanders outside
the contract and deals with matters not allotted to him, he commits
F an error of jurisdiction. This ground of challenge will now fall
within the new ground added under Section 34(2-A).”
15. Next, he drew our attention to the judgment of this Court in
Punjab State Civil Supplies Corporation Ltd. and Another Versus
Ramesh Kumar and Company and Others2.
G
“12. In the present case, the High Court was required to determine
as to whether the District Judge had acted contrary to the
provisions of Section 34 of the 1996 Act in rejecting the challenge
1
(2019) 15 SCC 131
2
2021 SCC ONLINE SC 1056
H
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 695
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
to the arbitral award. Apart from its failure to do so, the High A
Court went one step further while reversing the judgment of the
District Judge in decreeing the claim in its entirety. This exercise
was clearly impermissible. The arbitrator was entitled to draw
relevant findings of fact on the basis of the evidence which was
adduced by the parties. This was exactly what was done in the
B
arbitral award. The award of the arbitrator was challenged
unsuccessfully by the respondents under Section 34 of the 1996
Act. In this backdrop, there was no basis in law for the High
Court to interfere with the judgment of the District Judge and, as
we have noted earlier, to even go a step further by decreeing the
claim.” C
16. He also submitted that the purport of clause (3) of the
agreement was to give a benefit to the party to whom the communication
is sent terminating the contract. A construction of the contract by the
Arbitrator is not open to interference on the score that the court finds
the same incorrect. Yet this is precisely what has been done in the D
impugned judgment. He would point out that, in fact, the new dealer is
the wife of a Martyr being the widow of a slain soldier.
17. Shri Shailash Madiyal, learned counsel sought to counter the
appellants in the following manner: He would submit that actually, clause
(3) of the agreement in question clearly contemplated that the dealership E
was to remain sacrosanct for a period of 15 years. This is subject only to
an earlier termination as contemplated in clause (56). Clause (56), it is
pointed out, provided for termination by IOC on certain acts and omissions
by the dealer. He further contended that it is only after the expiry of first
15 years that the parties contemplated extension of the contract by 5
years at a time. The total period of the contract is 15 years to begin with F
and, by virtue of subsequent extension of 5 years each, could go upto 30
years. However, the facility of termination of the dealership by giving a
three months’ notice, in writing, was impermissible during the first 15
years. He would submit that such an interpretation is warranted having
regard to the fact that a person who would have invested a huge sum G
would lose the dealership by the IOC being endowed with the power to
terminate the contract by merely giving a notice of three months’ duration.
Since the notice was, in this case, admittedly sent within the first 15
years, clause (3) was inapplicable, and there was no termination in law.
The learned counsel did agree that such a contention was never raised
H
696 SUPREME COURT REPORTS [2023] 5 S.C.R.
A before the arbitrator, the District Judge or the High Court. Next, he
contended that the alleged acceptance dated 28.11.2006 was not
unambiguous. He supported the view taken by the High Court. He pointed
out that before the actual acceptance which, he points out, took place
only on 07.12.2006 by the Management, the first respondent had
withdrawn the earlier communication. He would submit that in the facts
B
of the case there was no error committed by the High Court in interfering
with the Award. In regard to the complaint of the appellants that the
High Court has exceeded its authority acting under Section 36 of the
Act by modifying the Award, he very fairly submits that there may be
merit in the said contention having regard to the view taken by this Court.
C ANALYSIS
18. The controversy revolves around clause (3) which we have
set out earlier. We must proceed in the matter on the basis that we
cannot permit the first respondent to contend that termination of the
dealership cannot be brought about by giving a three months’ notice
D during the first 15 years of the dealership. Such an interpretation was
not placed for the consideration of the Arbitrator. It is not even raised
before the District Court or the High court. The first respondent is calling
upon this Court in a case arising under the Act to place a wholly novel
interpretation. It is not as if the contention canvassed is the only view
E possible. In fact, the conduct of the first respondent is premised on the
interpretation which leaves it open to the parties to terminate the contract
by giving three months’ notice even within the first 15 years of the
dealership.
19. On a perusal of clause (3), in fact, it occurred to this Court
F that here is a term in a contract which expressly does not require any
acceptance of the other party for the premature termination of the
contract by giving a notice of three months. We would break down the
clause as meaning that it contemplated determination of the agreement
by either party (words lifted from the contract as such) by giving three
months notice to the other party with the intention to terminate the
G agreement. Thereafter, the clause provides that upon the expiration of
such notice, the agreement and the licence granted would stand cancelled
and revoked. There are no words even faintly suggesting acceptance of
a notice of intention to terminate the agreement as being indispensable
for the determination of the agreement. The ball is set rolling by the
H issuance of the notice and the process appears to successfully culminate
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 697
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
in the agreement and the licence granted under the agreement being A
cancelled or revoked.
20. Though such a view appears to be the correct construction of
the agreement, Shri Shailash Madiyal the learned counsel, appearing for
the first respondent would point out that IOC and what is more, even the
arbitrator, and therefore the District Court and the High court have all B
proceeded on the basis that acceptance of the notice of termination
alone suffices. In view of the fact that this appears to be the case, we
would consider the matter on the basis that acceptance is necessary.
21. There is no dispute that the first respondent addressed
communication dated 25.09.2006. It is also indisputable that the officers C
of the IOC insisted that the first respondent must notarise the notice. A
meeting in this regard did take place. The notice came to be notarised
and what is more, received on 16.11.2006. A perusal of the notice dated
25.09.2006 clearly indicates that the first respondent has clearly indicated
that it gave the version that they have shifted to Bangalore for their
childrens education, and what is more, therefore, they were not able to D
look after the dealership. They wished to “withdraw from the dealership
and appoint new R.O. dealers before three months as per our agreement
Dt: 13th Oct. 2003.” In other words, there cannot be even a shred of
doubt that the first respondent indeed invoked clause (3). The words
used may appear to be inelegant. However, the conduct as noticed leaves E
us in no doubt, and what is more, even the first respondent does not have
a case that the action was not traceable to the provisions of clause (3).
On the expiry of three months, the inexorable consequences provided in
clause (3) would have ensued. However, since we are proceeding on
the basis that IOC must have signified its assent for the notice to bear
fruit, on 18.11.2006, the second appellant in the appeal filed by IOC F
referred to the notarised letter dated 03.10.2006 which was received on
16.11.2006. IOC has taken note of the intention of the first respondent
to resign from the dealership. Thereafter, we may note that the first
respondent was requested to continue operation till arrangements were
made. Lastly, the letter ends with expression of gratitude for the G
association of the first respondent with the IOC and wishing both the
partners the very best in their future endeavours. From the terms and
the tone of the letter and the circumstances, the arbitrator who is the
chosen judge of the facts and the merits concluded that there was
acceptance of the notice. It could be open to debate whether there was
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698 SUPREME COURT REPORTS [2023] 5 S.C.R.
A sufficient articulation of the acceptance. Words such as “we have taken
note of your intention to resign from our dealership” could perhaps have
been supplanted with the benefit of hindsight with different words. But
the question which arises is when the letter is read in the context of the
facts as a whole, particularly, in the light of the jurisdiction of the Court
to interfere with a finding of the arbitrator within his jurisdiction, we are
B
of the view that the High Court has palpably erred. Clause (3) permits
either party to bring about a premature termination of the contract. By
giving a notice of three months, if the noticee is the IOC, IOC is enabled
to make arrangements so that essential services provided by a dealer do
not suffer abrupt disruption. In other words, alternate arrangements could
C be made. Likewise, a termination by IOC would put the dealer on alert
and it can appropriately take steps towards arranging its affairs in a fair
manner.
22. Proceeding, therefore, on the footing that in the above sense a
premature termination of the agreement would need acceptance, we
D are unable to find that the view taken by the arbitrator in the facts, can
be characterised as being perverse. It is undoubtedly a plausible view. It
closes the door for the court to intervene. The finding of the arbitrator
cannot be described as one betraying “a patent illegality”.
23. The High Court has proceeded by adverting to draw a
E distinction between “termination of the agreement” and “resignation from
dealership”. The High Court has also proceeded on the basis that since
the agreement does not prohibit the first respondent from withdrawing
the case, the case has to be tested on the anvil of the Contract Act. A
merit review was undertaken to find that the offer of the first respondent
to ‘resign’ was not accepted by letter dated 22.11.2006.
F
24. It may be true that the clause in question did not provide for
resignation from dealership. Indeed, it provides only for termination of
the agreement. What the first respondent has indicated in letter dated
25.09.2006, the contents of which have been reiterated in the notarised
version dated 03.10.2006 and received on 16.11.2006 by the second
G appellant, is that the first respondent was ‘withdrawing’ from the
dealership. We are unable to support the High Court on the basis that
the clause in question did not contemplate resignation. In fact, though
not in all cases, a resignation may assume effect only upon acceptance
by the employer. What, on the other hand, is contemplated in clause (3)
H is a notice of three months terminating the contract by either party.
INDIAN OIL CORP. LTD. AND ORS. v. M/S. 699
SATHYANARAYANA SERVICE STATION [K. M. JOSEPH, J.]
25. Shri Shailash Madiyal pointed out that acceptance by the A
Management of IOC actually took place on 07.12.2006 and not on
22.11.2006. It is true that in the pleading (before the District Court in
proceedings under Section 34), it is inter alia stated as follows:-
“4. Subsequent to the submission of the resignation the defendants
went ahead with the termination of the dealership on the receipt B
of the notorized letter from the claimants, which was approved by
the Management of IOC on 07.12.06 and had to take action for
making alternative arrangements to operate the retail outlet for
protecting the commercial interest of the Corporation and also to
keep in mind of the supply of petroleum product to the public at
large.” C
“5. The dealer have requested for withdrawal of dealership on
25.09.2006. As stated in the earlier para based on the notorized
letter reinforcing what is stated in letter dated 25.09.2006. This
defendant has obtained management approval for termination of
the dealership on 07.12.2006 and have also replied through the D
letter dated 21.12.06 mentioning that the dealers request for
withdrawal cannot be considered. There is no obligation on the
part of Indian Oil corporation as per clause 3 of the dealership
agreement to reject the letter of resignation submitted by the
plaintiffs.” E
However, in the light of communication dated 18.11.2006,
essentially recognizing and in substance conveying acceptance or
approval; first respondent cannot draw strength from the same. IOC
has a case that it was for taking the matter forward in the matter of re-
awarding the dealership that the decision dated 07.12.2006 was made. F
More importantly, the communication purporting to take back the
withdrawal was given by first respondent on 11.12.2006 which is after
07.12.2006.
26. Proceeding on the basis that acceptance is necessary, we are
of the view that the High Court in a proceeding under Section 37 of the G
Act acted illegally in interfering with the finding of the Arbitrator and
what is more, a finding found acceptable to the District Judge under
Section 34 of the Act that there was acceptance vide letter dated
18.11.2006.
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700 SUPREME COURT REPORTS [2023] 5 S.C.R.
A 27. The High Court also erred in proceeding to order restoration
of the dealership to the first respondent after setting aside the award
and going further by leaving it open to the first respondent to claim
damages. It is beyond the pale of any doubt that the Court cannot, after
setting aside the award, proceed to grant further relief by modifying the
award. It must leave the parties to work out their remedies in a given
B
case even where it justifiably interferes with the award [See in this
behalf Project Director, National Highways No. 45 E and 220
National Highways Authority of India v. M. Hakeem and another3].
28. The appeals are allowed. The impugned judgement will stand
set aside and the award restored. Parties are to bear their respective
C costs.
Nidhi Jain Appeals allowed.
(Assisted by : Rakhi, LCRA)
D
E
F
G
3
H (2021) 9 SCC 1
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