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, 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 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 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 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 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 contend that termination of the dealership cannot be brought about by giving a three months’ notice 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 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-CF]
1.2 On a perusal of clause (3), in fact, it occurred that there 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 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 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; 697A]
1.3 Though such a view appears to be the correct 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 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 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 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 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 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 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 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 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 words, alternate arrangements could 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. [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, 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]
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 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 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 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]
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 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 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 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 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 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
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.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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