In C.A. No. 3533 of 2023-SC- After setting aside arbitral award, Court cannot proceed to grant further relief by modifying same; It must leave parties to work out their remedies where it justifiably interferes with such award: SC
Justices B.V. Nagarathna & K.M. Joseph [09-05-2023]

Read Judgment: INDIAN OIL CORPORATION LTD. AND ORS v. M/S. SATHYANARAYANA SERVICE STATION & ANR 

Tulip Kanth

New Delhi, May 10, 2023: Terming the arbitrator’s view as undoubtedly a plausible one and observing that the High Court erred in proceeding to order restoration of the dealership to the first Petrol Pump dealer after setting aside the award, the Supreme Court has allowed the appeals filed by Indian Oil Corporation Ltd.

Referring to the judgment of the Top Court in Project Director, National Highways No. 45 E and 220 National Highways Authority of India v. M. Hakeem and another, the Division Bench of Justice B.V. Nagarathna & Justice K.M. Joseph said, “It is beyond the pale of any doubt that the Court cannot, after setting aside the award, proceed to grant further relief by modifying the award. It must leave the parties to work out their remedies in a given case even where it justifiably interferes with the award.”

In the year 2003, IOC entered into a petrol/hsd pump dealer agreement with the first respondent-M/s. Sathyanarayana Service Station. There was a physical interaction in the course of which the IOC insisted that the request of the first respondent be notarised and the same was done. 

IOC took possession of the Petroleum Outlet and a new dealer came to be awarded the dealership in 2006. An appeal was carried by the first respondent before the General Manager of the IOC, Karnataka which was dismissed. This led to matters being referred to arbitration. The Sole Arbitrator by an award dated January 15, 2009 found that “inasmuch as the IOC and its officers had communicated the acceptance of the claimant’s resignation of the dealership vide their letter dated 22.11.2006, which brings the contract between both parties to an end, their rejection of the claimant’s subsequent request dated 11.12.2006 for withdrawing the resignation was in accordance with law”. 

The first respondent’s suit under Section 34 of Arbitration & Conciliation Act, 1996 was dismissed.By the impugned order in an appeal carried by the first respondent, the High Court set aside the award and directed that the first respondent shall be restored the dealership failing which the first respondent was held entitled to seek execution of the judgment and also seek necessary damages from IOC and its officers.

The IOC, its officers & the new dealer had approached the Top Court with the appeal in question.

The Bench referred to the notice indicating that the first respondent had clearly indicated that it gave the version that they had shifted to Bangalore for their children's education, and 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. The Bench noted that there was no shred of doubt that the first respondent indeed invoked clause (3) which  permitted either party to bring about a premature termination of the contract. 

By giving a notice of three months, if the noticee is the IOC, IOC is enabled to make arrangements so that essential services provided by a dealer do not suffer abrupt disruption and alternate arrangements could be made. Likewise, a termination by IOC would put the dealer on alert and it would appropriately take steps towards arranging its affairs in a fair manner, the Bench noticed.

Thus accepting the fact that a premature termination of the agreement would need acceptance, the Bench was unable to find that the view taken by the arbitrator in the facts, could be characterised as being perverse.

Considering the fact that the clause in question did not provide for resignation from dealership and it provided only for termination of the agreement, the Bench noticed that the first respondent had indicated in letter that it was ‘withdrawing’ from the dealership.

The Top Court was also unable to support the High Court on the basis that the clause in question did not contemplate resignation as a notice of three months terminating the contract by either party was contemplated in clause (3). IOC had a case that it was for taking the matter forward in the matter of re-awarding the dealership that the decision was made. 

“Proceeding on the basis that acceptance is necessary, we are of the view that the High Court in a proceeding under Section 37 of the Act acted illegally in interfering with the finding of the Arbitrator and what is more, a finding found acceptable to the District Judge under Section 34 of the Act that there was acceptance vide letter dated 18.11.2006”, the Bench said.

As per the Bench, the High Court had 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. 

Thus, reiterating that the Court cannot, after setting aside the award, proceed to grant further relief by modifying the award, the Bench allowed the appeals &  restored the award.