Allowed

M/S Sathyanarayana Service Station v. Indian Oil Corporation Ltd.

Karnataka HC15 Jan 2021MFA/4450/2011

Case brief

AI extract

What is this about?

Appeal against setting aside an award which terminated a petrol dealership. Court held appellant's termination notice was withdrawn before expiry, finding of Arbitrator perverse, and set aside award and order.

What did the court decide?

Award dated 15.01.2009 set aside; Order dated 11.01.2011 set aside; Respondent No.1 to restore dealership within three months or face execution.

M/S Sathyanarayana Service Station Vs Indian Oil Corporation… — Arbitration | Karnataka HC (2021)

¶1

¶2

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

¶3

DATED THIS THE 15^TH DAY OF JANUARY 2021

¶4

BEFORE

¶5

THE HON’BLE MR. JUSTICE NATARAJ RANGASWAMY

¶6

MISCELLANEOUS FIRST APPEAL NO.4450 OF 2011(AA)

¶7

BETWEEN:

¶8

M/S. SATHYANARAYANA SERVICE STATION, MYSORE-MERCARA ROAD, PERIYAPATNA, MYSORE-571107. REPRESENTED BY SRI. P.S.SURESH AND SMT. JYOTHI SURESH.

¶9

... APPELLANT

¶10

(BY SRI. MANMOHAN P.N., ADVOCATE)

¶11

AND:

¶12

INDIAN OIL CORPORATION LTD., G-9, ALI YAVER JUNG MARG, BANDRA EAST, MUMBAI-400001.

¶13

THE CHIEF DIVISIONAL RETAILS SALES MANAGER, INDIAN OIL CORPORATION LTD., BENGALURU DIVISIONAL OFFICE, BENGALURU-560 002.

¶14

THE GENERAL MANAGER INDIAN OIL CORPORATION LTD., KARNATAKA STATE OFFICE, BENGALURU-560 002.

¶15

¶16

THE CHIEF DIVISIONAL RETAIL SALES MANAGER, INDIAN OIL CORPORATION LTD., MANGALORE DIVISIONAL OFFICE, MANGALORE-575001.

¶17

M.P. PARVATHI DOOR NO.13/110(1), GOWLI STREET, MADIKERI, KODAGU-580030.

¶18

… RESPONDENTS

¶19

[BY SRI. B.K. SRIDHAR, ADVOCATE FOR RESPONDENT NOs.1 TO 4;

¶20

SRI. JANARDHAN REDDY, ADVOCATE FOR RESPONDENT NO.5 (THROUGH VC)]

¶21

THIS MISCELLANEOUS FIRST APPEAL IS FILED UNDER SECTION 37(1)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996 AGAINST THE JUDGMENT AND AWARD DATED 11.01.2011 PASSED IN ARBITRATION SUIT NO.2/2009 ON THE FILE OF PRINCIPAL DISTRICT AND SESSIONS JUDGE, MYSORE DISMISSING THE SUIT FILED UNDER SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT, 1996 TO SET ASIDE THE AWARD DATED 15.01.2009.

¶22

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 09.11.2020, THIS DAY THE COURT DELIVERED THE FOLLOWING:

¶23

J U D G M E N T

¶24

This appeal is filed challenging the order dated 11.01.2011 passed in A.S. No.2/2009 by the Principal

¶25

¶26

District and Sessions Judge at Mysore as well as the Judgment and Award 15.01.2009 passed by the Sole Arbitrator.

¶27

Briefly stated, the facts that can be gathered

¶28

from the pleadings are that the appellant, a partnership firm, had obtained a dealership to vend petrol and petroleum products from the respondent Nos.1 to 4. The appellant was the dealer for more than 25 years since the year 2003. The appellant was reconstituted on 02.10.2003 and respondent No.1 executed a Memorandum of Agreement authorizing the appellant to carry on the dealership for a period of 15 years commencing from 13.10.2003 and for further five years each until determined by either party by giving three months’ notice in writing to the other of its or their intention to terminate the agreement and on expiry of such notice, the agreement was to terminate. It is stated that the land on which the petrol bunk was

¶29

¶30

situate, belonged to the partners of the appellant. The appellant claimed that there were some differences of opinion between one of the partners of the appellant and the Sales Officer attached to respondent No. 1. It is stated that the Sales Officer was harassing the appellant which was communicated to the higher officials of respondent No.1 which did not evoke any response. Consequently, in terms of a letter dated 25.09.2006, the appellant submitted its resignation from the dealership of respondent No.1.

¶31

The respondent No.1 by letter dated 22.11.2006 replied to the appellant that it “took note of the intention of the appellant to resign from the dealership”. However, the appellant was requested to continue the operation till alternative arrangement was made. It is stated that even before respondent No.1 accepted the resignation of the appellant, the appellant by letter dated 11.12.2006, sought to withdraw the

¶32

¶33

resignation and assured the respondent No.1 that it would run the outlet smoothly without any problem. However, the respondent No.4 vide letter dated 21.12.2006 informed the appellant that the

¶34

Management of respondent No.1 had approved the resignation and that the withdrawal of the resignation of dealership cannot be considered. The respondent No.1 thereafter appointed the respondent No.5 as the dealer of the outlet, in terms of a letter of intent dated 28.12.2006. The appellant therefore filed an appeal before respondent No.3 in terms of Rule 134 of the Indian Petroleum Rules, 2002. The said appeal was rejected in terms of an order dated 02.04.2007. The appellant thereafter raised a dispute in terms of the agreement which was referred to an Arbitrator appointed by the respondent No.1. The Arbitrator passed an award on 15.01.2009 holding that the termination order dated 21.12.2006 was in accordance with law.

¶35

¶36

The appellant being aggrieved by the order

¶37

award passed by the Arbitrator filed a suit under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act of 1996’) in Arbitration Suit No.2/2009 before the Prl. District and Sessions Judge, Mysore, (henceforth referred to as ‘District Court’). The learned District Judge in terms of the Order dated 11.01.2011, dismissed the suit on the ground that the appellant herein had not made out any ground under Section 34 of the Act of 1996 to overturn the award. Hence, the appellant has filed the present appeal under Section 37 of the Act of 1996.

¶38

The records of the proceedings before the Arbitrator as well as the District Court were secured.

¶39

Learned counsel for the appellant quoted the relevant clause of the agreement dated 13.10.2003 which is as follows:

¶40

¶41

“ This Agreement shall remain in force for fifteen years from day of 13^th October 2003 and continue thereafter for successive periods of five years each until determined by either party by giving three months’ notice in writing to the other of its intention to terminate this agreement and upon the expiration of any such notice this Agreement and the License 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 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.”

¶42

Learned counsel for the appellant also

¶43

invited the attention of the Court to the letter dated 25.09.2006, which was notarized on 03.10.2006 and submitted to respondent No.1 on 16.11.2006. The same reads as below:

¶44

¶45

“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 RO.

¶46

Hence, kindly withdraw from R.O. dealership and appoint new R.O dealers before three months as per our agreement Dt.13^th Oct 2003.

¶47

Hope you will consider our humble request and do the needful.”

¶48

8. In response to this letter, the respondent

¶49

No.1 replied by its letter dated 22.11.2006 as under:

¶50

“This has reference to the notarized letter dated 3^rd October 2006 received by our office on 16^th November 2006 informing us of your intention to retire from our retail outlet dealership.

¶51

This notarized letter sent by you, with reference to the recognition 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.

¶52

¶53

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 request you to continue operation till we make an alternative arrangement.

¶54

We thank your for your association with our organization and wish you both all the very best in your future endeavours”

¶55

This letter of resignation was withdrawn by

¶56

the appellant on 11.12.2006 in the following manner:

¶57

“ I would like to bring to your kind notice that I have sent the R.O Dealership withdrawal letter (notarised) due to unavoidable circumstances.

¶58

But I would like to take back the withdrawl from the Dealership.

¶59

I am extremely sorry for the trouble and inconvenience caused.

¶60

But I will assure you Sir, that in the future we will run the outlet smoothly without giving you any problems.”

¶61

¶62

10. Following this, the respondent No.1

¶63

addressed a letter dated 21.12.2006 which is as

¶64

follows:-

¶65

“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 resignation letter. Thereafter, you withdrew your resignation, and once again on 16.11.2006, you submitted a resignation letter duly notarized on 03.10.2006.

¶66

On receipt of the above, we sent you a letter by RPAD accepting your resignation. Thereafter, you visited our office on 22.11.2006 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.

¶67

Based on your notarized resignation and personal confirmations, 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

¶68

¶69

considered at this stage, due to the abovementioned reasons”.

¶70

The thrust of the arguments of the learned

¶71

counsel for the appellant was that it had withdrawn the resignation before its acceptance and that there was no proof to show that the resignation letter of the appellant

¶72

was accepted by the respondent No.1. Therefore the learned counsel contended that the appellant was entitled to withdraw the resignation. Further, the learned counsel for the appellant contended that the Arbitrator did not apply his mind to the facts and circumstances of the case in as much as he misread the reply dated 22.11.2006 as the letter of acceptance of the resignation. The Arbitrator did not give a reasoned judgment on the facts and circumstances of the case.

¶73

The learned counsel also brought to the notice of the Court the procedure adopted by the Court below in requiring the parties to adduce evidence. The learned counsel submitted that the whole proceedings before

¶74

¶75

the Arbitrator as well as the District Court are thoroughly irregular and therefore calls for interference by this Court.

¶76

Per contra , the learned counsel for

¶77

respondent Nos.1 to 4 contended that the resignation letter was submitted voluntarily by the appellant. Thereafter, the respondent No.1 had made physical enquiries with the appellant and found that the resignation letter was genuine. Therefore, the appellant was called upon to produce a notarized copy of the resignation letter which was also accordingly done by the appellant. The respondent No.1 had noted the said resignation and had required the appellant to continue till a new dealer was appointed. Therefore, the learned counsel would submit that the resignation was accepted then and there and the continuation of the appellant in the petrol bunk was only on ad-hoc basis and not as a dealer of the respondents. The learned counsel

¶78

¶79

contended that there was no ground made out by the appellant for setting aside the Award passed by the Arbitrator under Section 34 of the Act of 1996. The learned counsel submitted that this appeal under Section 37 of the Act of 1996 also lies in a narrow compass and therefore, this Court should not interfere with the findings of the Arbitrator as well as the District Court.

¶80

The learned counsel for respondent No.5, who claims to be the dealer appointed subsequent to the resignation of the appellant, contends that she has expended substantial sums of money to run the dealership and therefore, any order that may be passed should not affect her. She also contended that she was a bona fide allottee and therefore, she was entitled to continue as a dealer.

¶81

Before considering the case on merits, it is imperative that the scope under Section 34 of the Act of

¶82

¶83

1996 to interfere with an award passed by the Arbitrator is considered. Section 34 in its pristine form disallowed interference by the Courts in respect of an award passed unless such an award suffered from any infirmity on grounds prescribed under various clauses of Section 34 of the Act of 1996. The concept of “patent illegality” of an award which was tucked into Section 34(2)(b)(ii) of the Act of 1996 by the Judgment of the Apex Court in the case of Oil and Natural Gas Corporation Limited vs. Saw Pipes Ltd. reported in 2003 (5) SCC 705 , threw up an avalanche of cases that threatened the very edifice of the Act of 1996. This concept of “patent illegality” was further accentuated in

¶84

Oil and Natural Gas Corporation Limited vs. Western Geco International Limited reported in (2014) 9 SCC 263 in which it evolved three juristic principles for interference with an award namely (i) that it should not be arbitrary, whimsical but should be bona fide , dealing with the subject in a fair, reasonable

¶85

¶86

and objective manner, not actuated by any extraneous consideration (ii) that it should comply with the principles of natural justice (iii) there should not be any perversity or irrationality or lack of reasonableness. However, the expanded scope for interference on the touchstone of “patent illegality” as enunciated in cases of Saw Pipes (supra) and Western Geco (supra) was considered in Associate Builders vs. Delhi Development Authority reported in 2015 (3) SCC 49 by which the Apex Court held that the finding based on no evidence or irrelevant material or by excluding material which no man of ordinary prudence would do, could be treated as being “perverse” but if a finding is based on evidence, such an award should not be interfered by reassessing or re-appreciating the evidence.

¶87

In an attempt to resurrect the sanctity of the institutional settlement of disputes, the Parliament

¶88

¶89

amended the Act of 1996 by Act 3 of 2016 which inserted Section 34 (2A) to the Act of 1996 which provides that the award of an arbitrator can be interfered with if it is found to be patently illegal on the face of the award and that such illegality should go to the root of the matter.

¶90

The Apex Court in the case of Dyna Technologies Private Limited vs. Crompton Greaves

¶91

Limited reported in 2019 (20) SCC 1 in para Nos.34 and 35 has held as under:

¶92

“ 34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.

¶93

35. When we consider the requirement of a reasoned order, three characteristics of a

¶94

¶95

reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. ”

¶96

In so far as the present case is concerned, the dispute between the parties was essentially whether the appellant had resigned from the dealership of the respondent No.1 or not. The respondent No.1 claimed that the reply dated 22.11.2006 was itself an acceptance of the resignation but a perusal of the reply does not indicate that the resignation of the appellant herein was accepted. However, the Arbitrator proceeded on the assumption that the reply dated 22.11.2006 was acceptance of the resignation. The arbitrator was bound to adjudicate the dispute based on the terms of the

¶97

¶98

agreement which provided that any party to the agreement could terminate it “ by giving three months’ notice in writing to the other of its intention to terminate this agreement and upon the expiration of any such notice this Agreement and the Licence granted as aforesaid shall stand cancelled and revoked”. A perusal of the agreement only provides for “termination of the agreement” and not “resignation from dealership” and does not contemplate acceptance of “resignation”. It also does not prohibit a party from withdrawing the “intention to terminate” but provides that the agreement shall stand terminated after the expiry of three months. Though the appellant had expressed its “intention to terminate”, but withdrew it before the expiry of three months and before the same was accepted by the respondent No.1. Since the agreement did not prohibit the appellant from withdrawing its “intention to terminate”, the case has to be tested on the anvil of the

¶99

¶100

provisions of the Indian Contract Act, 1872 (for short, ‘the Contract Act’).

¶101

Under Section 5 of the Contract Act, a proposal may be revoked at any time before communication of its acceptance. It is undisputed that the appellant had sought for withdrawal of the resignation. Hence, the offer to resign from the dealership of the respondent No.1 came to an end soon after the appellant withdrew its resignation. The offer by the appellant to resign from the dealership was not accepted by the respondent No.1, at least not by the letter dated 22.11.2006. There is no document on record to indicate that by any other letter, the respondent No. 1 had accepted the resignation. Hence the finding of the Arbitrator that the resignation of the appellant was accepted by the letter dated 22.11.2006 was perverse and not based on any evidence and such perversity went to the root of the matter.

¶102

¶103

In so far as the contention of the respondent

¶104

Nos.1 to 4 that there were no grounds available to the appellant to challenge the Award passed by the Arbitrator is concerned, it is apparent that the Petrol Bunk was established on the land belonging to the appellant at a nominal rent of Rs.10,000/- per month. It is also apparent that the Arbitrator did not apply his mind to the facts and circumstances of the case and therefore, the award was not justified but was patently illegal.

¶105

Before parting from the case, it is distressing to note that the District Court recorded evidence in the case treating the proceeding under Section 34 of the Act of 1996 as a original suit filed under the Code of Civil Procedure. The Court was not bound to record evidence unless it found anything lacking and even if it did, it could relegate the parties before the Arbitrator to record a finding on any issue so as to eliminate the grounds for

¶106

¶107

setting aside the arbitral award . It definitely could not have recorded evidence in a rigmarole way.

¶108

Hence the impugned Award passed by the Arbitrator as well as the impugned order passed by the District Court under Section 34 of Act of 1996 deserve to be set aside. Hence, the following:

¶109

O R D E R

¶110

The appeal is allowed .

¶111

The Award dated 15.01.2009 passed by

¶112

the Arbitrator is set aside. Consequently, the order dated 11.01.2011 passed by the Court of the Principal District and Sessions Judge, Mysore, in A.S. No.2/2009 is also set aside.

¶113

The respondent No.1 shall restore the dealership of the appellant within three months from the date of receipt of a certified copy of this judgment, failing which the

¶114

¶115

appellant shall be entitled to seek execution of this judgment and also seek necessary damages from respondent Nos.1 to 4.

¶116

Sd/JUDGE

¶117

mbb

M/S Sathyanarayana Service Station v. Indian Oil Corporation Ltd.

Case brief

What is this about?

What did the court decide?

M/S Sathyanarayana Service Station v. Indian Oil Corporation Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Smt. Vijaya Laxmi Vs Smt. S. Vasantha

M/S Drongo Ai LLP Vs Spookfish Innovations Pvt. Ltd.

Nagina Vs Ganapathi

B N Jayakumar @Prakash Vs the State of Karnataka

N P Ram Bhat Vs the Deputy Commissioner

D v Ramakrishnaiah Vs State by P S I of Doddabelavangala Town P S