INDIAN OIL CORPORATION LTD. THROUGH ITS SENIOR MANAGER versus M/S SHREE GANESH PETROLEUM RAJGURUNAGAR THROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITE on 1 February 2022

[2022] 16 S.C.R.

AINDIAN OIL CORPORATION LTD. THROUGH ITS SENIORMANAGER

v.

M/S SHREE GANESH PETROLEUM RAJGURUNAGARTHROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITEB

(Civil Appeal Nos. 837-838 of 2022)

FEBRUARY 01, 2022

[INDIRA BANERJEE AND ABHAY S. OKA, JJ.]

Arbitration And Conciliation Act, 1996 : ss. 34, 37 – ArbitralCaward – Setting aside of – Parties entered into two agreements,dealership agreement and lease agreement having distinct provisionsfor reference of the dispute to the arbitrator – Termination of thedealership agreement by the appellant – Appointment of anarbitrator in terms of the agreement – Arbitrator passed an awardDholding that the termination of the dealership was valid, andincreased the monthly lease rent and reduced the period of the lease– Challenge to, by the appellant and the respondent – High Courtpartly allowed the respondent’s appeal and dismissed the appellant’sappeal holding that there was no scope for the district court tointerfere with the award – On appeal, held: An arbitral tribunalEbeing a creature of contract, is bound to act in terms of the contractunder which it is constituted – An award can be said to beunquestionably illegal where the arbitral tribunal has failed to actin terms of the specificities of the contract – An arbitral tribunal isentitled to interpret the terms and conditions of a contract, whileFadjudicating a dispute - An error in interpretation of a contract ina case where there is valid and lawful submission of arbitral disputesto an arbitral tribunal is an error within jurisdiction whileadjudicating a dispute – Court does not sit in appeal over the awardmade by an arbitral tribunal – Court does not ordinarily interferewith the interpretation made by the arbitral tribunal of a contractualGprovision, unless such interpretation is patently unreasonable orperverse – Impugned award insofar as it pertains to lease rent andlease period is patently beyond the scope of the competence of thearbitrator appointed in terms of the dealership agreement – Anarbitral tribunal, or for that matter, the Court cannot alter the terms H

and conditions of a valid contract executed between the partieswith their eyes open – Judgment of the High Court set aside, asalso of the District Court insofar as the same pertains to lease rentand lease period.

Allowing the appeal, the Court

HELD: 1.1 The lease agreement and the dealershipagreement are distinct agreements, independent of each other.Disputes under the lease agreement were referrable to thearbitration of the Managing Director of the appellant who was tobe the sole Arbitrator, and only if the Managing Director wasunable or unwilling to act as sole Arbitrator the disputes were tobe referred to the sole Arbitrator designated or nominated bythe Managing Director in his place. If the disputes could not bereferred to the Managing Director for any reason, the matterwas not to be referred to arbitration at all. In the instant case, therespondent invoked the Arbitration Clause under the DealershipAgreement and approached the Director (Marketing) of theappellant who appointed Mr. B.L. Parihar as the sole Arbitrator.The Arbitrator, Mr. B.L. Parihar, nominated by the Director(Marketing) of the appellant had no authority and/or jurisdictionto adjudicate any dispute pertaining to the lease agreement. [Para32, 33][476-C-F]

1.2 In so far as disputes with regard to lease rent and/orany other conditions of the deed of lease were concerned, theHigh Court proceeded on the patently erroneous basis that theappellant had not objected to the competence or the authority orjurisdiction of the Arbitrator to entertain and decide disputes withregard to lease agreement, ignoring the specific averments madeby the appellant in its counter statement. In its counter statement,the appellant had specifically averred that the alternate prayer ofthe respondent claiming increase in lease rent to Rs.35,000/-per month with 20% increase in every three years was outsidethe ambit of the arbitration proceedings. The appellant alsoasserted categorically that, without challenging the registeredlease deed executed by it, the respondent could not seek an orderof the Arbitrator, modifying the terms of the lease deed. The HighCourt also apparently overlooked the fact that the jurisdiction ofthe arbitral tribunal to increase the monthly lease rent from A

BCD

E

FGH

ARs.1750/- per month to Rs.35,000/- per month was specifically inissue before the arbitrator as evident from the impugned award.[Para 39, 40, 41][478-E-H; 479-A]

1.3 An arbitral tribunal being a creature of contract, is boundto act in terms of the contract under which it is constituted. AnBaward can be said to be patently illegal where the arbitral tribunalhas failed to act in terms of the contract or has ignored the specificterms of a contract. An arbitral tribunal is entitled to interpretthe terms and conditions of a contract, while adjudicating a dispute.An error in interpretation of a contract in a case where there isvalid and lawful submission of arbitral disputes to an arbitralCtribunal is an error within jurisdiction. [Para 44, 45][479-G; 480-A-B]

1.4 The Court does not sit in appeal over the award madeby an arbitral tribunal. The Court does not ordinarily interferewith interpretation made by the arbitral tribunal of a contractualDprovision, unless such interpretation is patently unreasonable orperverse. Where a contractual provision is ambiguous or iscapable of being interpreted in more ways than one, the Courtcannot interfere with the arbitral award, only because the Courtis of the opinion that another possible interpretation would haveEbeen a better one. [Para 46][480-C]

1.5 There is no finding by the arbitral tribunal that anycondition of the dealership agreement was unconscionable andthe arbitral tribunal has not interfered with termination of thedealership agreement. The appellant and the respondent enteredFinto the lease agreement with their eyes open. The respondenthad the option not to lease out its property to the appellant. Thesituation of an owner of property, executing a lease agreement inrespect of his property cannot be equated with a contract ofemployment executed by and between an employee and a mightyemployer, where the employee has little option but to accept theGterms and conditions offered by the employer. [Para 57, 58][483-C-E]

1.6 The impugned judgment of the High Court is set aside.The impugned judgment of the District Court insofar as the samepertains to lease rent and lease period is also set aside. TheH

impugned award dated 04.11.2010 is set aside to the extent thatthe Arbitrator has increased the monthly lease rent of the land inquestion from Rs.1750/- to Rs.10000/- with 10% increase afterevery three years w.e.f. the date of the termination of thedealership and to the extent the Arbitrator has reduced the periodof lease from 29 years to 19 years and 11 months. [Para 60,61][484-A-C]

MD. Army Welfare Housing Organization v. SumangalService (P) Ltd. (2004) 9 SCC 619 : [2003] 4 Suppl.SCR 385 – relied on.

Associate Builders v. Delhi Development Authority(2015) 3 SCC 49 : [2014] 13 SCR 895 – distinguished.

Central Inland Water Transport Corporation Limitedand Anr. v. Brojo Nath Ganguly and Anr. (1986) 3 SCC156 : [1986] 2 SCR 278 – held inapplicable.

Rahul Yadav & Anr. v. Indian Oil Corporation Ltd. &Ors. (2015) 9 SCC 447 : [2015] 7 SCR 978; MukundSwarup Mishra v. Union of India (UOI) and Ors. (2007)2 SCC 536 : [2007] 1 SCR 825; PSA SICAL TerminalsPvt. Ltd. v. Board of Trustees of V.O. ChidambranarPort Trust Tuticorin and Ors. (2021) AIR 4661;Ssangyong Engineering and Construction Co. Limitedv. National Highways Authority of India (2019) 15 SCC131 : [2019] 7 SCR 522; Satyanarayana ConstructionCo. v. Union of India and Ors. (2011) 15 SCC 101 –referred to.

Constitutional Supremacy-A Revisit, Essays onConstitutionalism, Rule of Law & ConstitutionalAdjudication by Mr. V. Sudhish Pai – referred to.

A

B

C

D

E

F

G

H

A[2003] 4 Suppl. SCR 385relied onPara 53[1986] 2 SCR 278held inapplicablePara 55

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 837-838 of 2022.

BFrom the Judgment and Order dated 11.09.2015 of the High Courtof Judicature at Bombay in Arbitration Appeal No. 19 of 2013 andArbitration Appeal No. 39 of 2013.

Amit Meharia, Ms. Tannishtha Singh, Abinash Agarwal, Ms. NehaManiktala, M/S. Meharia & Company, Advs. for the Appellant.

CMrs. V. D. Khanna, Adv. for the Respondent.

The Judgment of the Court was delivered by INDIRA BANERJEE, J.

Leave granted.D

2. These appeals are filed by Indian Oil Corporation Limited againsta judgment and order dated 11[th] September 2015 passed by the HighCourt of Judicature at Bombay partly allowing Arbitration Appeal No.19of 2013 filed by the Respondent and dismissing Arbitration Appeal No.39of 2013 filed by the Appellant.

E3. The facts giving rise to these appeals are stated very brieflyhereinafter.

4. The Appellant took a plot of land, hereinafter referred to as“the said premises”, on lease from the Respondent for a term of29 years, pursuant to a deed of lease dated 20[th] September 2005 whichFwas duly registered, in order to set up a retail outlet for sale of its petroleumproducts.

5. The recital of the deed of lease, inter alia, records:- “1)…….The above mentioned Property is owned by SHRI.LAXMAN DAGDU THITTE. The said leased Property is moreGparticularly described in the Schedule hereinbelow giventogether with the Structures and Building now standing thereonor that may be hereafter erected thereon by the LESSEE TOBOLD the premises hereby demised I hereinafter for the sakeof brevity referred to as the (“DEMISED PREMISES”) untoHthe LESSEE for a term of 29 (TWENTY NINE years, H

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

commencing from the 20th day of SEPTEMEBR 2005renewable and determinable as hereinafter provided yieldingand paying thereof during the said term monthly and theproportionately for any part of a month the rent of Rs. 1750 /- (RUPEES ONE THOUSAND SEVEN HUNDRED AND FIFTYonly) to be paid without any deduct on or before the 15[th] dayof each and every calendar month.”

6. The deed of lease, hereinafter referred to as “the leaseagreement” contained, inter alia, the following terms and conditions:- “2) THE LESSEE DOTH HEREBY COVENANT WITH THELESSOR/S AS FOLLOWS:

i)Lease Rent will be Rs. 1750 /- (RUPEES ONETHOUSAND SEVEN HUNDRED AND FIFTY Only) permonth.

3) Lease Period will be 29 years from 15/04/2005 withfurther renewal by mutual consent.

...

4. ) (e) To use or permit to be used the BUILDINGS ANDSRUCTURES to be constructed on the DEMISED PREMISESfor any and all lawful purposes as may be permitted by theAuthorities from time to time including for storing, selling orotherwise carrying on business in Petrol, Diesel, PetroleumProducts, oil and kindred motor Accessories, Petrol FillingService and Lubricating Station etc.

…

(i) Subject to the LESSOR/S covenant hereinafter contained(and the Rights of the LESSE/S interest in the said DEMISEDPREMISES as mentioned hereinafter), to deliver and yield upthe DEMISED PREMISES at the expiration or soonerdetermination of the said term as herein provided together —-all the LESSOR/S fixtures and fittings in such state andcondition as the same were in, when the possession was takenof by the LESSEE at the commencement of the said Term (fair wear and tear and loss and/ or damage/s by fire, fluid,earthquake, tempest, lightning, violence of any army, mob orirresistible fierce or accident expected). All additions, A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

alteration, installations, (fittings and fixtures which duringthe said term or any renewal thereof belong to and revert tothe LESSEE who shall be entitled to take away the sameprovided the DEMISED PREMISES are restored to theiroriginal state and conditions and the LESSOR/S will not haveany right, title and interest thereon nor shall he/she/they beentitled to retain or appropriate any part thereof.

…

3) (b) That on the LESSEE paying the rent hereby reservedand observing and performing all the several Covenants,conditions and Agreements hereinbefore contained and on itspart to be observed and performed the LESSEE shall peaceablyhold and enjoy the DEMISED PREMISES during the said andany renewal/s thereof without any let or interruption by theLESSOR/S or by any persons lawfully or equitably claimingthrough, under or in trust for the LESSOR/S.

…

4) (a) ….. If the Rent hereby reserved or any part thereof shallbe in arrears for a period of one year after becoming payableand after being demanded or if the LESSEE to be observedand performed their and in that event it shall be lawful forthe LESSOR at any time thereafter to re-enter upon the saidpremises or any part thereof in the name of the whole and totake action to possess and enjoy as in all their former stateand interest Provided always and it is hereby agreed anddeclared that the Power of Re-entry hereinabove containedshall not be exercised unless and until the LESSOR/S shallhave first given to the LESSEES 90 days’ Notice in writingpointing out the Breach in respect of which the right to Re-Entry is exercised and the LESSEE shall have failed to remedythe breach within a reasonable period of not less than 90days thereafter. ….

…

(e) The LESSEE shall be entitled to ASSIGN, TRANSFER,SUBLET, UNDERLET or part with the Possession of theDEMISED PREMISES or any part thereof to any person IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

above name whomsoever it chooses without the consent ofthe LESSOR.

(f) The LESSEE shall be entitled to appoint, remove, reappoint,change and substitute any dealers, agents, licensees and otherauthorized representatives on and in respect of the DEMISEDPREMISES without the consent OF THE LESSOR.

……

(n) PROVIDED ALWAYS AND IT IS AGREED ANDDECLARED that at the expiration of the said Term of 30years this LEASE will be renewed for a further term by mutualconsent. The renewed lease will be on the rents, conveyance,conditions and Agreements to be mutually agreed uponbetween the Parties.

…

5. Any dispute or difference of any nature whatsoeverregarding any Right, liability, act, omission on account of anyof the parties hereto arising out of or in rein-tion to theseshall be referred to the sole Arbitrator of the Managing Directorof the LESSEE and if the Managing Director is unable orunwilling to act as a sole Arbitrator then the matter will bereferred to the sole Arbitrator of any other person designatedor nominated by such Managing Director in his place andstate writing to act as an Arbitrator and the LESSOR/S will notbe entitled to raise any objection to any such arbitration onthe ground that, the Arbitrator so appointed is an officer ofthe LESSEE of that as such officer he had dealt with the mattersto which the disputes relates or had expressed his viewsthereon, the Arbitrator to whom the matter originally referredbeing transferred or vacating in his office being unable toact for any reason such Managing Director as aforesaid atthe time of such transfer vacation of office or on his inabilityto act shall nominate as designate another person to act asan Arbitrator pursuant to this clause and such other personshall be entitled to proceed with the reference from the pointat which it was left by his predecessor. It is expressly agreedthat no person other than the Managing Director of theLESSEE as aforesaid shall act as an Arbitrator and if for AB

C

DE

F

G

H

Aany reason that is not possible, the matter shall not be referredto Arbitration at all. The Award of the Arbitrator so appointedas herein provided shall be final, conclusive and binding onboth the Parties and such the Arbitration shall be held subjectto and in accordance with the Provisions of the ARBITRATIONACT 1940, and any Statutory Modification enactment thereof.”B

7. The Appellant set up an A site retail outlet at the said premisesmaking an investment of around Rs.50 lakhs. The Respondent wasappointed a dealer of the said retail outlet and a dealership agreementdated 15[th] November 2006 was executed by and between the Appellantand the Respondent.C

8. The dealership agreement, inter alia,provided:- “AND WHEREAS the Corporation carrieson the business of refining and sale ofDpetroleum products and more particularlyof Motor Spirit (MS) and High Speed DieselOil (HSD):

Recitals

1[st] Schedule

AND WHEREAS the Corporation is theOwner/Lessee/Tenant/licensee of a Plot ofland and is the Owner/Lessee/Tenant/Elicensee of the superstructures thereon moreparticularly described in the First Schedulehereunder written and of the structuresthereon (Hereinafter collectively referred toas “the Premises”) and has installed and/For is about to install at and under the saidpremises the apparatus and equipmentdescribed in the Second Schedule hereto(hereinafter called “the Outlet”)

WHEREAS at the request of the Dealer, theGCorporation has agreed to appoint theDealer as its Dealer for the retail sale orsupply at the said premises of certainpetroleum products on the terms andconditions hereinafter contained.

2[nd] Schedule

H….

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

2. This agreement shall remain in force fora period of fifteen years from 15[th] day ofNov’ 2006 and continue thereafter forsuccessive periods of one year each untildetermined by either party by giving threemonths’ notice in writing to the other of itsintention to terminate this agreement andupon the expiration of any such notice, thisagreement shall stand cancelled revoked,provided that nothing contained in thisclause and prejudice the rights of either ofthe parties hereto to terminates thisagreement earlier in exercise of their rightsunder any of the provisions contained inthis agreement and/or the rights of theCorporation to stop and/or suspend and/or restrict the supplies to the Dealer and/or the sales from the premises by the Dealerpursuant to the provisions contained in thatbehalf in this Agreement.

Period

…

4. The Corporation reserves the rightwithout reference to or consent of theDealer to appoint one or more additionalDealer/s in the same town/area or locationand such additional Dealer/s shall beentitled to make sales of the productswithout any objection from the Dealer andthe Dealer shall not be entitled to make anyclaim for remuneration, commission orallowance whatsoever in respect of the salesmade by such additional Dealer/s and/orsales made by the Corporation through suchadditional Dealer/s.

Corporation’sright to appointadditionalDealer/s …

7. (a) The Dealer undertakes that he andhis servants and agents will observe and A

B

C

D

E

F

G

H

460SUPREME COURT REPORTS[2022] 16 S.C.R.Aperform the provisions of the Petroleum Act,The Petroleum1934 and the Explosives Act, 1884 and anyActstatutory re-enactment or modificationthereof for the time being force and all rulesand regulations made thereunder and allother Government or Municipal Local orBsimilar Acts, Laws, Regulations and bye-laws, as may be in force from time to timerelating to the Dealer’s business in the saidproducts and to the storage, receipt andtransportation and other related matters asCcontemplated under this Agreement and allrequisitions and requirements of allauthorities appointed under the foregoingenactment, rules or regulations. If there isany violation on the part of the Dealer, hisservants and agents of the aforesaidDprovisions or statutory rules andregulations, the Corporation will have theabsolute right to discontinue the suppliesand take any other action including thetermination of this Agreement as theECorporation may at its absolute discretionthink fit.(b) The Dealer shall also be solelyresponsible for any breach orcontravention by himself, his employees,Fagents of any Acts, rules, regulation or bye-laws of the central and/or State Governmentand/or Municipal Local and/ or otherauthorities as may be applicable to thebusiness including without prejudice to thegenerality of the foregoing, the concernedGauthorities respectively appointed under thePetroleum Act, Payment of Wages Act,Shops and Establishments Act, FactoriesAct and the Workmen’s compensation Act.The Explosives Act, 1884 or any other ActHor Statutory Rules, Regulations or Bye-

Laws made thereunder and/ or applicablefrom time to time to the business of storageand sale of products and servants, workmenand persons engaged in connectiontherewith and the corporation shall not be responsible in any manner for any liabilitiesarising out of non-compliance by the Dealerwith the same.

…

8(e) For the use of the said premisesincluding the construction thereon andoutfit, the Dealer shall pay to theCorporation a licence fee as may be fixedand recovered or deducted in the manneras may be decided by the Corporation, atits sole discretion and without any previousnotice to the Dealer shall from time to timeand at all times be entitled to increase orrevise or modify the said licence fee. …

Licence Fee

…

8(j) It is understood by the Dealer that thepremises mentioned in the First Schedulehereunder writer are Public Premises withinthe meaning of the provisions of the PublicPremises (Eviction of UnauthorizedOccupants).

Dealer tosafeguardCorporation rightin the premises …

10. It is specifically agreed and declaredthat the basic condition of the grant of theDealership rights by the Corporation to theDealer herein is that the ‘Dealer herebyagreed, undertakes and covenant to upliftand pay for the following minimumquantities of the product per month asspecified hereunder.

Minimumquantity/saleTargets

A

B

C

D

E

F

G

H

462SUPREME COURT REPORTS

SUPREME COURT REPORTS[2022] 16 S.C.R.APRODUCTSQUANTITYMS (Petrol)30 KLSHSD150 KLSMOTOR OIL/GREASEKL/KGBOther Products viz.The Corporation shall have the absoluteright to revise the aforesaid minimumquantities/sale targets from time to time bynotice in writing and on every such revisionCthis clause shall be read and construed asif such revised figures had been mentionedherein instead of those hereinabove setout.It is also specifically agreed that in theevent of the Dealer not achieving theDaforesaid minimum quantities at any timeduring three out of six consecutive monthsduring the currency of this Agreement, theCorporation shall be entitled,notwithstanding any acquiescence orwaiver of this condition in respect ofEanyone or more months andnotwithstanding any other provision hereincontained, to terminate this Agreement bygiving 30 days’ notice in writing to theDealer.

F…

15. Notwithstanding anything to thecontrary herein contained the Corporationshall be at liberty upon breach by theDealer of any covenant in this AgreementGto top and/or suspend forthwith all suppliesto the Dealer and/ or sales from the premisesby the Dealer for such period or periodsas the Corporation may think fit, and suchright of stoppage and/or suspension ofsupplies shall be in addition to and/orH

Corporation'sright to suspendsupplies

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

without prejudice to any other right orremedy of the Corporation under thisAgreement or Law. For the purpose of thisclause, the General Manager of theCorporation for the time being at Mumbaishall be the Sole Judge as to whether abreach of any covenant of this agreementhas been committed by the Dealer. TheDealer shall not be entitled to claim anycompensation or damage from theCorporation on account of any suchstoppage and/ or suspension of supplies.

…

17. ……The Corporation shall have theright to exercise at its discretion at any timeand from time to time quality controlmeasures for products marketed by theCorporation and lying with Dealer. Theopinion of the General Manager of theCorporation for the time being at Mumbaias to whether any product of thecorporation has been contaminated and/or adulterated shall be final and bindingupon the Dealer.

In the event of the said GeneralManager finding that the contaminationand/or adulteration of product has beendue to any act or default or negligence ofthe Dealer or of his servants or agents, theCorporation shall have the right, withoutbeing bound to do so, to remove thecontaminated/ adulterated product and todestroy or otherwise deal with the samewithout making any payment therefor to theDealer and without prejudice to theCorporation a right to terminate thisAgreement forthwith.

…

ABCProductSpecification/Conamination/DadulterationETerms ofpaymentFGH

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

India and/or any other local authority withregard to the safe practices.

43. The Corporation by its officers,representatives or servants will be entitledat all times to enter upon the premises andinspect the management of the retail outletby the Dealer in all respects and the Dealershall be bound to render all assistance andgive all information to the Corporation andits duly authorized representatives in thatbehalf and produce to the Corporation and/or its duly authorized representatives in thatbehalf whenever required to do so Invoices/Cash Memos for all purchases and receiptsfor all payments which it is the Dealer’s dulyto make whether under the terms of thisAgreement or otherwise.

Forthwith Termination

…

45. Notwithstanding anything to thecontrary herein contained, the Corporationshall be at liberty at its entire discretion toterminate this Agreement forthwith upon orat any time after the happening of any ofthe following events namely:-

a) If the Dealer shall commit a breach ordefault of any of the terms, conditions,covenants and stipulations contained inthis Agreement,…

…

61. (a) Any dispute or difference of anynature whatsoever, any claim, cross-claim,counter-claim or set-off or regarding anyright, liability, act, omission or account ofany of the parties hereto arising out of orin relation to this agreement shall be A

Corporation’sright to inspectBmanagement ofdealershipC

D

ForthwithETerminationF

G

Arbitration

H

Areferred to the sole arbitration of theDirector (Marketing) of the Corporationwho may either himself act as the Arbitratoror nominate some other officer of theCorporation to act as the Arbitrator. TheDealer will not be entitled to raise anyBobjection to any such Arbitrator on theground that the Arbitrator is an Officer ofthe Corporation.”

9. There can be no dispute that the Lease Agreement andDealership Agreement are distinct agreements independent of each other.CThis is evident from the terms and conditions of the respectiveagreements. While the lease agreement was for a fixed period of 29years from 15[th] April 2005, after which the lease could be extended bymutual agreement on mutually agreed terms and conditions, the dealershipagreement was for a period of 15 years from 15[th] November 2006 andDto continue thereafter for successive periods of one year each, untildetermined by the other party.

10. Furthermore, the lease agreement specifically authorized theAppellant to sublet, underlet, assign or transfer possession of the saidpremises to any person. The lease agreement also reserved on theEAppellant the right to appoint, remove, reappoint, change or substituteany dealers, agents, licensees or other authorized representatives ofthe Appellant on and in respect of the said premises, without the consentof the lessor, that is, the Respondent.

11. The dealership agreement was inherently terminable whereasFthe lease agreement as stated above was for a fixed period of 29 yearsfrom the date of execution thereof. Clause 3(b) of the lease agreementspecifically provided that, on the lessee paying the rent as per the leaseagreement and performing its conditions, it would be entitled to peaceablyhold and enjoy the said premises without any interruption by the lessor/s or any person claiming through the lessor/s.G

12. Distinctness of the dealership agreement from the leaseagreement is also apparent from the obligation imposed by the dealershipagreement on the Respondent to pay a licence fee for use of the saidpremises demised by the Respondent to the Appellant.

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

13. While the lease agreement provided for reference of disputesto the Managing Director of the Appellant for arbitration and if theManaging Director was unable or unwilling to act as a sole Arbitrator,then the sole arbitration of any other person designated or nominatedby the Managing Director, the dealership agreement provided for referenceof disputes to the sole arbitration of the Director (Marketing) of theCorporation who might either himself act as the Arbitrator or nominatesome other officer of the Corporation to act as the Arbitrator.

14. The lease agreement expressly provided that disputes underthe said agreement were not to be referred to any person other than theManaging Director of the Appellant, and if for any reason that was notpossible, the matter was not to be referred to arbitration at all. On theother hand, as stated above, disputes under the dealership agreementwere referable to the Director (Marketing) of the Appellant who wasdebarred from entertaining any reference of dispute under the leaseagreement.

15. The learned Additional Solicitor General, Ms. Madhavi Diwan,appearing on behalf of the Appellant referred to a judgment of this Courtin Rahul Yadav and Another v. Indian Oil Corporation Limited andothers[1], where this Court clearly held that a dealership agreement bywhich the lessor of a land was appointed a dealer was distinct andindependent from the lease agreement by which the land on which theoutlet was installed, had been demised to the Appellant.

16. In Rahul Yadav v. Indian Oil Corporation (supra), this Courtheld:- “18. We have referred to the clauses in extenso to highlightthat the lessee had entered into an agreement of lease withthe appellant with immense liberty and the lease deed doeslay down that the lessee has the freedom to sublet and appointanother dealer. The lease would remain in force till thedealership of the appellant continued and the licenceremained in vogue. At this juncture, it is pertinent to reproducecertain clauses of the dealership agreement which wouldclearly spell out the purpose. They read as follows:

“2. The Corporation do hereby grant to the Dealer leaveand licence and permission for the duration of this A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Agreement to enter on the said premises and to use thepremises and outfit for the sole and exclusive purpose ofstoring, selling and handling the products purchased bythe Dealer from the Corporation, save as aforesaid, theDealer shall have no right, title or interest in the saidpremises or outfit and shall not be entitled to claim the rightof lessee, sub-lessee, tenant or any other interest in thepremises or outfit, is being specifically agreed and declaredin particular that the Dealer shall not be deemed to be inexclusive possession of the premises.

3. This Agreement shall remain in force for five years from14th day of May, 2002 and continue thereafter forsuccessive periods of one year each until determined byeither party by giving three months’ notice in writing to theother of its intention to terminate this Agreement, and uponthe expiration of any such notice this Agreement and thelicence granted as aforesaid shall stand cancelled andrevoked but without prejudice to the rights of either partyagainst the other in respect of any matter or thingantecedent to such termination provided that nothingcontained in this clause shall prejudice the rights of theCorporation to terminate this Agreement earlier on thehappening of the events mentioned in Clause 56 of thisAgreement.

***

7. Nothing contained in this Agreement shall be construedto prohibit the Corporation from making direct and/orindirect sales to any person whomsoever or fromappointing other dealers for the purpose of direct orindirect sales at such places as the Corporation may thinkfit. The dealer shall not be entitled to any claim or allowancefor such direct or indirect sales.”

19. It is appropriate to mention here that Clause 56 of thesaid agreement stipulates that notwithstanding anything tothe contrary containing before the said clause, theCorporation would be at liberty to terminate the agreementforthwith upon any time after happening of certain events.

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

The conditions are manifold. We may, for the sake ofcompleteness, reproduce two conditions:

“(h) If the Dealer does not adhere to the instructionsissued from time to time by the Corporation in connectionwith safe practices to be followed by him in the supply/storage of the Corporation’s products or otherwise.

(i) If the Dealer shall deliberately contaminate ortemper with the quality of any of the Corporation’sproducts.”

20. On a plain reading of the aforesaid agreement, it isclear as noon day that it has no connection whatsoeverwith the lease agreement. Both the agreements areindependent of each other. The appellant was a dealerunder the lessee, that is, the Corporation. The dealershipis liable to be cancelled on many a ground. In case there isa termination, dealership is bound to be cancelled and atthat juncture, if the lease deed is treated to have beenterminated along with the dealership, it will lead to asituation which does not flow from the interpretation of theinstruments. The dealership agreement has been terminatedbecause of the decision rendered by this Court in MukundSwarup Mishra [(2007) 2 SCC 536]. The consequence ofcancellation of the dealership is a sequitur of the judgment.The inevitable consequence of that is that the appellanthas to vacate the premises and the Corporation has theliberty to operate either independently or through anotherdealer. The appellant cannot be allowed to causeobstruction or create an impediment. The submission thatthe appellant entered into the lease agreement at a monthlyrent of Rs 10,000 as it was given the dealership is amercurial plea, only to be noted to be rejected. Thedealership was availed of as has been held by this Courtin an inapposite manner. In such a situation, consequencesare to be faced by the appellant.”

17. It appears that during a routine inspection on 17[th] April 2008certain irregularities were noticed with regard to functioning of the retailoutlet of which the Respondent had been appointed dealer.

A

B

C

D

EF

G

H

A18. By a letter dated 17[th] April 2008, the Appellant directed theRespondent not to carry on further sales from the said outlet. Thereafter,a notice dated 18[th] April 2008 was issued to the Respondent calling uponthe Respondent to show cause why action should not be taken againstthe Respondent for irregularities which amounted to violation of theMarketing Discipline Guidelines (MDG) 2005 issued by the Ministry ofBPetroleum and Natural Gas, Government of India and Public Sector OilMarketing Companies.

A

19. The Appellant also suspended the sale and supplies to theretail outlet run by the Respondent. By a letter dated 21[st] April 2008, theRespondent replied to the show cause notice admitting the irregularitiesCalleged.

20. By a letter dated 20[th] August 2008, the Appellant terminatedthe dealership of the Respondent, called upon the Respondent to vacatethe retail outlet and hand over peaceful possession thereof to the Appellantand also to settle accounts with the Appellant.D

21. The Respondent appealed to the Appellate Authority of theAppellant against the order of termination dated 20[th] August 2008. Byan order dated 17[th] July 2009, the Appellate Authority of the Appellantdismissed the appeal of the Respondent.

22. By a letter dated 24[th] August 2009, the Respondent invokedthe arbitration clause in the dealership agreement and requested theDirector (Marketing) of the Appellant to appoint an Arbitrator.

E

23. The Director (Marketing) of the Appellant appointed Mr. B.LParihar as Arbitrator in terms of the dealership agreement, by an orderdated 9[th] November 2009.F

24. The Respondent filed its Statement of Claims before the learnedArbitrator challenging the order of termination of the dealershipagreement. In addition to the prayer for setting aside of the order oftermination of the dealership agreement and the prayer for damages,the Respondent made an alternative prayer for amendment of the leaseGagreement to enhance the monthly rent of the said premises to Rs.35,000/- with a 20% increase after every three years.

25. The Appellant filed its Written Statement to the Statement ofClaim. In its Written Statement, the Appellant contended: - H

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

“2. The Claimant alternatively claimed a sum of Rs.45,28,000/- with interest at the rate of Rs.15% per annum and furtherclaimed increase in lease rent to Rs.35,000/- per month with20% increase after every three years. The said alternativeprayers of the Claimant are outside the ambit of this arbitrationproceedings and hence not maintainable and are liable tobe rejected.

xxx xxx xxx

9. … The rent was fixed after the Claimant had negotiatedwith the Committee of Officials of the Respondent and hadagreed to the amount of rent. As such the Rent was fixedmutually between the parties. The Respondent further submitsthat the Claimant has been regularly accepting the monthlyrent of Rs.1750/- from 2005 till date and has never raised anyobjection to the amount of the said Rent till filing of thisStatement of Claim. As such the Claimant has raised this issueof monthly rent as purely an afterthought in this Statement ofClaim.”

xxx xxx xxx

xxx xxx xxx

29. The alternative prayers of the Claimant at para 34(b)(I)(II)are not within the ambit of the Arbitration proceedings andhence not maintainable and not admitted by the Respondent.The Claimant has no ground whatsoever to call upon theArbitrator to Order the Respondent to pay to the Claimant thesum of Rs.45,28,000/- with interest at the rate of 15% perannum from the date of filing the claim till the payment by theClaimant. Without challenging the registered Lease Deedexecuted by the Claimant the Claimant cannot seek Order ofthe Hon’ble Arbitrator to modify the terms of the Lease Deed.Therefore the alternative prayers of the Claimant are also beliable to be rejected in toto.

26. The main issues which arose for determination before thelearned Arbitrator were:- “….

3. Whether the Claimant committed breaches of MDG Guidelineand Dealership Agreement dated 15.11.2006 and whether theclaimant is entitled for restoration?

AB

CD

EF

G

H

4. Whether the Termination letter dated 20.08.2009 is legal,valid and subsisting?

A

5. Whether the Claimant proves that the Claimant is entitledfor Order/Decree against the Respondent for the sum ofRs.45,28,000/-?

B

6. Whether this Arbitral Tribunal has jurisdiction to increasemonthly Lease Rent from Rs.1750/- per month to Rs.35,000/-per month with 20% increase after every three years?

7. Whether the Claimant proves that the Claimant is entitledfor increase in monthly lease rent from Rs.1,750/- per month toRs.35,000/- per month with 20% increase after every threeyears?”

C

27. The learned Arbitrator made and published an award dated04.11.2010 holding :- “FINDINGS AS TO ISSUE NO.2, 3 & 4D

…I hold that the Claimant has committed the breaches of termsand conditions of the Dealership Agreement dated 15.11.2006and MDG 2001 and therefore Termination Letter dated20.08.2008 issued by the Respondent is legal & valid. Itherefore find that the Claimant therefore is not entitled forEany restoration.

FINDINGS AS TO ISSUE NO.5

I find that the Claimant has made investment of Rs.45,28,000/-whereas the Respondent has also made investment ofRs.57,00,000/- for construction of Retail Outlet and alliedFexpenditures. The Claimant has committed the seriousirregularities which are not at all permitted as per the saidDealership agreement & MDG and provision penalties arealso made thereof, which has caused the serious loss ofgoodwill and reputation to the Respondent Company. Due toGthe serious irregularities, the Claimant’s dealership wasterminated. The Claimant therefore is not entitled for sum ofRs.45,28,000/- and interest thereon.

FINDINGS AS TO ISSUE NO.6 & 7

The Claimant had raised an Appeal before Executive Director(Retail Sales) of the Respondent to revoke the termination of H

Dealership on humanitarian ground since lease rent of theland is too low to survive. The Claimant submitted that theClaimant offered and agreed to let out his Land on Long Leasefor monthly rent of Rs.1,750/- only because the Respondentagreed to allot the dealership of petrol pump as his plot ofland and the monthly income from the said dealership wasassured. I have perused the Government Valuation Report ofthe Land of the Claimant (Exhibit “O”) and instance of one

Mr. Bajirao Jadhav relied upon the Claimant (Exhibit “P”)to prove the market rate of the vicinity of the Land of theClaimant. Both the documents are registered documents. TheLease Agreements executed by Mr. Bajirao Jadhav and theClaimant are altogether different with different terms andconditions and negotiations between the parties. The Claimantand Respondent are bound by terms and conditions of LeaseAgreement dated 20.09.2005 and this Arbitral Tribunal cannotgo beyond the Lease Agreement dated 20.09.2005 haveprovided and determined the rates of rent and increases inthe rent and the same are binding upon the parties. I find thatsince the Dealership of petrol pump is already terminated thereshall be no income of the dealership to the claimant otherthan the lease rent which is too low to survive and claimanthad agreed to let out his Land on Long Lease for monthly rentof Rs.1,750/- only because the Respondent agreed to allot thedealership of petrol pump as his plot of land therefore theClaimant is entitled to get some reasonable increase in themonthly lease rent of the said land for survival but increasenot to the tune of Rs.35000/- from Rs.1750/- as submitted bythe Claimant.

Award

1. The Termination of dealership order dated 20.08.2008 isvalid, legal and binding upon the Claimant and theRespondent. The Claimant is not entitled for restoration ofdealership.

2. The claimant is not entitled, for claim of Rs.45,28,000/- andinterest thereon.

ABCDEFG

H

A3. The monthly lease rent of the said land to be increasedfrom Rs.1750/- to Rs.10000/- with 10% increase after everythree years w.e.f. the date of the termination of the dealershipand period of lease deed to be kept as per period mentionedin the advertisement published in the News Paper on 6.7.2005.With the above award, I have concluded the arbitrationBproceedings and published this award on 4.11.2010.”

28. The Appellant filed an application being Civil Misc. ApplicationNo. 115 of 2011 under Section 34 of the Arbitration and Conciliation Act,1996, hereinafter referred to as “the 1996 Act” for setting aside of thesaid award in the Court of the District Judge, Pune. The Respondent filedCits cross objection to the impugned award and also filed a counter claimin the Court of the District Judge, Pune.

29. The counter claim filed by the Respondent was apparentlymisconceived. There could be no question of any counter claim to anapplication for setting aside of an award.D

30. Section 5 of the 1996 Act provides that notwithstanding anythingcontained in any other law for the time being in force, in matters governedby Part I of the 1996 Act, no judicial authority shall intervene exceptwhere so provided in Part I.

31. Section 34 in Part I of the 1996 Act as it is stood at the materialEtime provided as follows:

“34.Applicationforsettingasidearbitralaward.—(1) Recourseto a Court against an arbitral award may be made only by anapplication for setting aside such award in accordance withFsub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law towhich the parties have subjected it or, failing anyindication thereon, under the law for the time being inforce; or G

(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of the H

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

arbitral proceedings or was otherwise unable topresent his case; or A

(iv) the arbitral award deals with a dispute notcontemplated by or not falling within the terms of thesubmission to arbitration, or it contains decisions onmatters beyond the scope of the submission toBarbitration:Provided that, if the decisions on matters submittedto arbitration can be separated from those not sosubmitted, only that part of the arbitral award whichcontains decisions on matters not submitted toCarbitration may be set aside; or(v) the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreementof the parties, unless such agreement was in conflictwith a provision of this Part from which the partiesD

(v) the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreementof the parties, unless such agreement was in conflictwith a provision of this Part from which the partiescannot derogate, or, failing such agreement, was notin accordance with this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capableof settlement by arbitration under the law forthe time being in force, or E

(ii) the arbitral award is in conflict with the publicpolicy of India.

[Explanation 1.—For the avoidance of any doubt, it isclarified that an award is in conflict with the public policyof India, only if,—

F

(i) the making of the award was induced or affectedby fraud or corruption or was in violation ofSection 75 or Section 81; or G

(ii) it is in contravention with the fundamentalpolicy of Indian law; or

(iii) it is in conflict with the most basic notions ofmorality or justice.

Explanation 2.—For the avoidance of doubt, the test as towhether there is a contravention with the fundamentalpolicy of Indian law shall not entail a review on the meritsof the dispute.]

A

[(2-A) An arbitral award arising out of arbitrations otherthan international commercial arbitrations, may also be setaside by the Court, if the court finds that the award is vitiatedby patent illegality appearing on the face of the award:

B

Provided that an award shall not be set aside merely onthe ground of an erroneous application of the law or byCreappreciation of evidence.]”

32. As observed above, the lease agreement and the dealershipagreement are distinct agreements, independent of each other. Disputesunder the lease agreement were referrable to the arbitration of theManaging Director of the Appellant who was to be the sole Arbitrator,Dand only if the Managing Director was unable or unwilling to act as soleArbitrator the disputes were to be referred to the sole Arbitrator designatedor nominated by the Managing Director in his place. If the disputescould not be referred to the Managing Director for any reason, the matterwas not to be referred to arbitration at all.

E33. In the instant case, the Respondent invoked the ArbitrationClause under the Dealership Agreement and approached the Director(Marketing) of the Appellant who appointed Mr. B.L. Parihar as thesole Arbitrator. The Arbitrator, Mr. B.L. Parihar, nominated by the Director(Marketing) of the Appellant had no authority and/or jurisdiction toadjudicate any dispute pertaining to the lease agreement.F

E

34. The Arbitral Award is liable to be set aside in so far as thesame deals with disputes with regard to the Lease Agreement whichare not contemplated by the Arbitration Clause in the dealershipagreement and/or in other words, do not fall within the terms of thesubmission to Arbitration. The Arbitral award is thus liable to be setGaside under Section 34(2)(a)(iv) of the 1996 Act. The decision enhancingthe lease rent is patently beyond the scope of the submission to arbitration.Moreover, the composition of the Arbitral Tribunal or the arbitral procedurewas not in accordance with the lease agreement dated 20[th] September,2005.

35. By a judgment and order dated 29[th] January 2013, the DistrictJudge-3, Pune allowed the Counter Objection of the Respondent to theaward in part and modified the award by deleting the last clause, that is,“and the period of Lease Deed to be kept as per the period mentionedin the advertisement published in the newspapers on 6.7.2005” withthe observation that the term of agreement if wholly prejudicial or capableof causing grave injustice to one of the parties, could certainly beoverlooked not only by Court of Justice, but also by the Arbitrator. TheDistrict Judge held that the learned Arbitrator had rightly enhanced therent to Rs. 10,000/- with 10% increase after every three years. However,the learned Court held that it was not within the province of the Arbitratorto decrease the lease period to 19 years and 11 months as per theadvertisement given in the newspapers.

36. Both the Respondent and Appellant appealed to the BombayHigh Court under Section 37 of the 1996 Act challenging the judgmentand order of the District Judge-3, Pune.

37. By a judgment and order dated 11[th] September 2015, the HighCourt partly allowed the Arbitration Appeal No.19 of 2013 filed by theRespondent and dismissed Arbitration Appeal No.39 of 2013 filed by theAppellant observing that there was no scope for the District Court tointerfere with the impugned award. The High Court held:- “10. Coming to the interference by the appellate court withthe award on the dispute under the lease agreement, it is patentfrom the impugned order that the interference with the samewas beyond the provision of Section 34 of the ArbitrationAct. The learned Judge on the one hand permittedenhancement of the lease rent but denied the reduction of thelease period. The learned Judge lost sight of the fact that theclaimant had contended before the learned Arbitrator thathe was compelled by the respondent to agree for the lease of29 years and 11 months, though the advertisement permittedhim dealership for only 19 years and 11 months. It is nobody’scase that the lease rent of Rs.1,750/- per month was at themarket rate at the relevant time. It is obvious that the claimanthad agreed for the extended period of the lease only becausethe same was coupled with the dealership agreement. In thecircumstances, there was no scope for the District Court tointerfere with the impugned award. To that extent, the appeal ABC

D

E

F

G

H

Aof the claimant must be allowed and the directions containedin the impugned order at paragraph “2” be set aside. Hence,Arbitration Appeal No.39 of 2013 is dismissed. ArbitrationAppeal No.19 of 2013 is partly allowed. The direction at para2 of the impugned order is set aside.”

B38. In the High Court, learned senior counsel appearing for theAppellant had submitted that adjudication of the dispute under the leaseagreement was beyond the jurisdiction of the learned Arbitrator. It waspointed out that the lease agreement provided for a specified Arbitratorthat is the Managing Director of the Appellant or any other persondesignated or nominated by the Managing Director. The Arbitrator in theCinstant case, Mr. B.L. Parihar, had been appointed pursuant to theDealership Agreement by the Director (Marketing) of the Appellant.The High Court rejected the aforesaid contention with the observation:- “9. Perusal of the record however shows that no suchcontention was taken before the Arbitrator as also in theDapplication filed under Section 34 of the Arbitration Act.Therefore, the appellant cannot be allowed to raise it for thefirst time before this court. Because it would mean that theclaimant has accepted Mr. B.L. Parihar as the Arbitrator forthe dispute under the lease agreement.”

E39. In so far as disputes with regard to lease rent and/or any otherconditions of the deed of lease were concerned, the High Court proceededon the patently erroneous basis that the Appellant had not objected tothe competence or the authority or jurisdiction of the learned Arbitratorto entertain and decide disputes with regard to lease agreement, ignoringFthe specific averments made by the Appellant in its counter statement,which have been extracted hereinabove.

40. In its counter statement, the Appellant had specifically averredthat the alternate prayer of the Respondent claiming increase in leaserent to Rs.35,000/- per month with 20% increase in every three yearsGwas outside the ambit of the arbitration proceedings. The Appellant alsoasserted categorically that, without challenging the registered lease deedexecuted by it, the Respondent could not seek an order of the Arbitrator,modifying the terms of the lease deed.

41. The High Court also apparently overlooked the fact that thejurisdiction of the Arbitral Tribunal to increase the monthly lease rentH

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

from Rs.1750/- per month to Rs.35,000/- per month was specifically inissue before the learned Arbitrator (Issue No.6) as evident from theimpugned award.

AB

42. As held by this Court in Associate Builders v. DelhiDevelopment Authority[2], cited by Mr. Prasenjit Keswani, learnedcounsel appearing on behalf of the Respondent, Section 34 in conjunctionwith Section 5 of the 1996 Act makes it clear that an arbitral award thatis governed by Part I of the 1996 Act, can only be set aside on groundsmentioned under Sections 34(2) and (3) of the said Act and not otherwise.The Court considering an application for setting aside an award, underSection 34 of the 1996 Act cannot look into the merits of the awardexcept when the award is in conflict with the public policy of India asprovided in Section 34(2)(b)(ii) of the 1996 Act.

C

43. In Associate Builders (supra), this Court held that an awardcould be said to against the public policy of India in, inter alia, the followingcircumstances: - D

(i) When an award is, on its face, in patent violation of a statutoryprovision.

(ii) When the Arbitrator/Arbitral Tribunal has failed to adopt ajudicial approach in deciding the dispute.

(iii) When an award is in violation of the principles of naturalEjustice.

(iv) When an award is unreasonable or perverse.

(v) When an award is patently illegal, which would include anaward in patent contravention of any substantive law of IndiaFor in patent breach of the 1996 Act.

(vi) When an award is contrary to the interest of India, or againstjustice or morality, in the sense that it shocks the conscienceof the Court.

44. An Arbitral Tribunal being a creature of contract, is bound toact in terms of the contract under which it is constituted. An award canbe said to be patently illegal where the Arbitral Tribunal has failed to actin terms of the contract or has ignored the specific terms of a contract.

G

2 (2015) 3 SCC 49

A45. However, a distinction has to be drawn between failure to actin terms of a contract and an erroneous interpretation of the terms of acontract. An Arbitral Tribunal is entitled to interpret the terms andconditions of a contract, while adjudicating a dispute. An error ininterpretation of a contract in a case where there is valid and lawfulsubmission of arbitral disputes to an Arbitral Tribunal is an error withinBjurisdiction.

A

46. The Court does not sit in appeal over the award made by anArbitral Tribunal. The Court does not ordinarily interfere with interpretationmade by the Arbitral Tribunal of a contractual provision, unless suchinterpretation is patently unreasonable or perverse. Where a contractualCprovision is ambiguous or is capable of being interpreted in more waysthan one, the Court cannot interfere with the arbitral award, only becausethe Court is of the opinion that another possible interpretation wouldhave been a better one.

47. In Associate Builders (supra), this Court held that an awardDignoring the terms of a contract would not be in public interest. In theinstant case, the award in respect of the lease rent and the lease term isin patent disregard of the terms and conditions of the lease agreementand thus against public policy. Furthermore, in Associate Builders (supra)the jurisdiction of the Arbitral Tribunal to adjudicate a dispute itself wasEnot in issue. The Court was dealing with the circumstances in which aCourt could look into the merits of an award.

48. In this case, as observed above, the impugned award insofaras it pertains to lease rent and lease period is patently beyond the scopeof the competence of the Arbitrator appointed in terms of the dealershipFagreement by the Director (Marketing) of the Appellant.

49. The lease agreement which was in force for a period of 29years with effect from 15[th] April, 2005 specifically provided for monthlylease rent of Rs.1750 per month for the said plot of land on which theretail outlet had been set up. It is well settled that an Arbitral Tribunal, orGfor that matter, the Court cannot alter the terms and conditions of a validcontract executed between the parties with their eyes open.

50. In Ssangyong Engineering and Construction CompanyLimited v. National Highways Authority of India (NHAI)[3], this Courtheld:

H3 (2019) 15 SCC 131

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

“76. However, when it comes to the public policy of India,argument based upon “most basic notions of justice”, it isclear that this ground can be attracted only in veryexceptional circumstances when the conscience of the Courtis shocked by infraction of fundamental notions or principlesof justice. It can be seen that the formula that was applied bythe agreement continued to be applied till February 2013 —in short, it is not correct to say that the formula under theagreement could not be applied in view of the Ministry’schange in the base indices from 1993-1994 to 2004-2005.Further, in order to apply a linking factor, a Circular,unilaterally issued by one party, cannot possibly bind theother party to the agreement without that other party’s consent.Indeed, the Circular itself expressly stipulates that it cannotapply unless the contractors furnish an undertaking/affidavitthat the price adjustment under the Circular is acceptable tothem. We have seen how the appellant gave such undertakingonly conditionally and without prejudice to its argument thatthe Circular does not and cannot apply. This being the case,it is clear that the majority award has created a new contractfor the parties by applying the said unilateral Circular andby substituting a workable formula under the agreement byanother formula dehors the agreement. This being the case, afundamental principle of justice has been breached, namely,that a unilateral addition or alteration of a contract can neverbe foisted upon an unwilling party, nor can a party to theagreement be liable to perform a bargain not entered intowith the other party. Clearly, such a course of conduct wouldbe contrary to fundamental principles of justice as followedin this country, and shocks the conscience of this Court.However, we repeat that this ground is available only in veryexceptional circumstances, such as the fact situation in thepresent case. Under no circumstance can any court interferewith an arbitral award on the ground that justice has notbeen done in the opinion of the Court. That would be anentry into the merits of the dispute which, as we have seen, iscontrary to the ethos of Section 34 of the 1996 Act, as hasbeen noted earlier in this judgment.”

ABCDEF

G

A51. In PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees ofV.O. Chidambranar Port Trust Tuticorin and Others[4]this Courtreferred to and relied upon SSangyong Engineering andConstruction Company Limited (supra) and held:

“87. As such, as held by this Court in SsangyongBEngineering and Construction Company Limited (supra), thefundamental principle of justice has been breached, namely,that a unilateral addition or alteration of a contract has beenfoisted upon an unwilling party. This Court has further heldthat a party to the Agreement cannot be made liable to performsomething for which it has not entered into a contract. In ourCview, re-writing a contract for the parties would be breach offundamental principles of justice entitling a Court to interferesince such case would be one which shocks the conscienceof the Court and as such, would fall in the exceptionalcategory.”

D

52. In PSA SICAL Terminals Pvt. Ltd. (supra) this Court clearlyheld that the role of the Arbitrator was to arbitrate within the terms ofthe contract. He had no power apart from what the parties had givenhim under the contract. If he has travelled beyond the contract, he wouldbe acting without jurisdiction.

E

53. In PSA SICAL Terminals Pvt. Ltd. (supra) this Court referredto and relied upon the earlier judgment of this Court in MD. ArmyWelfare Housing Organization v. Sumangal Service (P) Ltd.[5]andheld that an Arbitral Tribunal is not a court of law. It cannot exercise itspower ex debito justitiae.F54. In

54. In Satyanarayana Construction Company v. Union of Indiaand Others[6], a Bench of this Court of coordinate strength held thatonce a rate had been fixed in a contract, it was not open to the Arbitratorto rewrite the terms of the contract and award a higher rate. Where anArbitrator had in effect rewritten the contract and awarded a rate, higherGthan that agreed in the contract, the High Court was held not to commitany error in setting aside the award.

4 (2021) SCC Online SC 5085 (2004) 9 SCC 619H6 (2011) 15 SCC 101

IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUMRAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE[INDIRA BANERJEE, J.]

55. There can be no dispute with the proposition of law enunciatedby this Court in Central Inland Water Transport Corporation Limitedand Another v. Brojo Nath Ganguly and Another[7], cited by Mr.Keswani. The judgment, however, has no application in this case.

56. In Brojo Nath Ganguly (supra), this Court held that a term ina contract of employment as also service rules of a Government companyproviding for termination of services of permanent employees withoutassigning reasons, on three months’ notice, or pay in lieu thereof wasunconscionable, arbitrary and opposed to public policy. This Court wasnot concerned with any lease agreement or any dealership agreement inthe aforesaid case.

57. In this case, there is no finding by the Arbitral Tribunal thatany condition of the dealership agreement was unconscionable and theArbitral Tribunal has not interfered with termination of the dealershipagreement.

58. The Appellant and the Respondent entered into the leaseagreement in this case with their eyes open. The Respondent had theoption not to lease out its property to the Appellant. The situation of anowner of property, executing a lease agreement in respect of his propertycannot be equated with a contract of employment executed by andbetween an employee and a mighty employer, where the employee haslittle option but to accept the terms and conditions offered by the employer.

59. It is well settled that a judgment of a Court is precedent forthe issue of law which is raised and decided. Words and phrases used ina judgment cannot be read in isolation, out of context. To quote thedistinguished author V. Sudhish Pai “Judgments and observations injudgments are not to be read as Euclid’s theorems or as provisionsof statute. Judicial utterances/pronouncements are in the setting ofthe facts of a particular case. To interpret words and provisions ofa statute it may become necessary for judges to embark uponlengthy discussions, but such discussion is meant to explain notdefine. Judges interpret statutes, their words are not be interpreted asstatutes. Thus, precedents are not to be read as statutes.”[8]

7 (1986) 3 SCC 156

8 Constitutional Supremacy-A Revisit, Essays on Constitutionalism, Rule of Law &Constitutional Adjudication by Mr. V. Sudhish Pai A

B

C

DE

F

G

H

484SUPREME COURT REPORTS

A60. For the reasons discussed above, the appeal is allowed. Theimpugned judgment of High Court is set aside. The impugned judgmentof the District Court insofar as the same pertains to lease rent andlease period is also set aside.

61. The impugned award dated 04.11.2010 is set aside to the extentBthat the Arbitrator has increased the monthly lease rent of the land inquestion from Rs.1750/- to Rs.10000/- with 10% increase after everythree years w.e.f. the date of the termination of the dealership and to theextent the Arbitrator has reduced the period of lease from 29 years to 19years and 11 months.

C

Nidhi Jain and Amarendra Kumar(Assisted by : Iram Jan, LCRA)

Appeal allowed.

D

E

F

G

H