# INDIAN OIL CORPORATION LTD. THROUGH ITS SENIOR MANAGER v. M/S SHREE GANESH PETROLEUM RAJGURUNAGAR THROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITE

- **Citation:** [2022] 16 S.C.R. 450
- **Court:** Supreme Court of India
- **Decided:** 2022-02-01
- **Case number:** Civil Appeal Nos. 837-838 of 2022
- **Bench:** Indira Banerjee, Abhay S. Oka
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indian-oil-corporation-ltd-through-its-senior-manager-v-m-s-shree-ganesh-35656
- **Pages:** 35

## Headnote

Arbitration And Conciliation Act, 1996 : ss. 34, 37 - Arbitral
award - Setting aside of - Parties entered into two agreements,
dealership agreement and lease agreement having distinct provisions
for reference of the dispute to the arbitrator - Termination of the
dealership agreement by the appellant - Appointment of an
arbitrator in terms of the agreement - Arbitrator passed an award
holding that the termination of the dealership was valid, and
increased the monthly lease rent and reduced the period of the lease
- Challenge to, by the appellant and the respondent - High Court
partly allowed the respondent's appeal and dismissed the appellant's
appeal holding that there was no scope for the district court to
interfere with the award - On appeal, held: An arbitral tribunal
being a creature of contract, is bound to act in terms of the contract
under which it is constituted - An award can be said to be
unquestionably illegal where the arbitral tribunal has failed to act
in terms of the specificities of the contract - An arbitral tribunal is
entitled to interpret the terms and conditions of a contract, while
adjudicating a dispute - An error in interpretation of a contract in
a case where there is valid and lawful submission of arbitral disputes
to an arbitral tribunal is an error within jurisdiction while
adjudicating a dispute - Court does not sit in appeal over the award
made by an arbitral tribunal - Court does not ordinarily interfere
with the interpretation made by the arbitral tribunal of a contractual
provision, unless such interpretation is patently unreasonable or
perverse - Impugned award insofar as it pertains to lease rent and
lease period is patently beyond the scope of the competence of the
arbitrator appointed in terms of the dealership agreement - An
arbitral tribunal, or for that matter, the Court cannot alter the terms
[2022] 16 S.C.R. 450
450
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and conditions of a valid contract executed between the parties
with their eyes open - Judgment of the High Court set aside, as
also of the District Court insofar as the same pertains to lease rent
and lease period.
Allowing the appeal, the Court
HELD: 1.1 The lease agreement and the dealership
agreement are distinct agreements, independent of each other.
Disputes under the lease agreement were referrable to the
arbitration of the Managing Director of the appellant who was to
be the sole Arbitrator, and only if the Managing Director was
unable or unwilling to act as sole Arbitrator the disputes were to
be referred to the sole Arbitrator designated or nominated by
the Managing Director in his place. If the disputes could not be
referred to the Managing Director for any reason, the matter
was not to be referred to arbitration at all. In the instant case, the
respondent invoked the Arbitration Clause under the Dealership
Agreement and approached the Director (Marketing) of the
appellant 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 jurisdiction
to adjudicate any dispute pertaining to the lease agreement. [Para
32, 33][476-C-F]
1.2 In so far as disputes with regard to lease rent and/or
any other conditions of the deed of lease were concerned, the
High Court proceeded on the patently erroneous basis that the
appellant had not objected to the competence or the authority or
jurisdiction of the Arbitrator to entertain and decide disputes with
regard to lease agreement, ignoring the specific averments made
by the appellant in its counter statement. In its counter statement,
the appellant had specifically averred that the alternate prayer of
the respondent claiming increase in lease rent to Rs.35,000/-
per month with 20% increase in every three years was outside
the ambit of the arbitration proceedings. The appellant also
asserted categorically that, without challenging the registered
lease deed executed by it, the respondent could not seek an

## Text

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SUPREME COURT REPORTS
[2022] 16 S.C.R.
INDIAN OIL CORPORATION LTD. THROUGH ITS SENIOR
MANAGER
v.
M/S SHREE GANESH PETROLEUM RAJGURUNAGAR
THROUGH ITS PROPRIETOR MR. LAXMAN DAGDU THITE
(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 - Arbitral
award - Setting aside of - Parties entered into two agreements,
dealership agreement and lease agreement having distinct provisions
for reference of the dispute to the arbitrator - Termination of the
dealership agreement by the appellant - Appointment of an
arbitrator in terms of the agreement - Arbitrator passed an award
holding that the termination of the dealership was valid, and
increased the monthly lease rent and reduced the period of the lease
- Challenge to, by the appellant and the respondent - High Court
partly allowed the respondent's appeal and dismissed the appellant's
appeal holding that there was no scope for the district court to
interfere with the award - On appeal, held: An arbitral tribunal
being a creature of contract, is bound to act in terms of the contract
under which it is constituted - An award can be said to be
unquestionably illegal where the arbitral tribunal has failed to act
in terms of the specificities of the contract - An arbitral tribunal is
entitled to interpret the terms and conditions of a contract, while
adjudicating a dispute - An error in interpretation of a contract in
a case where there is valid and lawful submission of arbitral disputes
to an arbitral tribunal is an error within jurisdiction while
adjudicating a dispute - Court does not sit in appeal over the award
made by an arbitral tribunal - Court does not ordinarily interfere
with the interpretation made by the arbitral tribunal of a contractual
provision, unless such interpretation is patently unreasonable or
perverse - Impugned award insofar as it pertains to lease rent and
lease period is patently beyond the scope of the competence of the
arbitrator appointed in terms of the dealership agreement - An
arbitral tribunal, or for that matter, the Court cannot alter the terms
[2022] 16 S.C.R. 450
450
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and conditions of a valid contract executed between the parties
with their eyes open - Judgment of the High Court set aside, as
also of the District Court insofar as the same pertains to lease rent
and lease period.
Allowing the appeal, the Court
HELD: 1.1 The lease agreement and the dealership
agreement are distinct agreements, independent of each other.
Disputes under the lease agreement were referrable to the
arbitration of the Managing Director of the appellant who was to
be the sole Arbitrator, and only if the Managing Director was
unable or unwilling to act as sole Arbitrator the disputes were to
be referred to the sole Arbitrator designated or nominated by
the Managing Director in his place. If the disputes could not be
referred to the Managing Director for any reason, the matter
was not to be referred to arbitration at all. In the instant case, the
respondent invoked the Arbitration Clause under the Dealership
Agreement and approached the Director (Marketing) of the
appellant 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 jurisdiction
to adjudicate any dispute pertaining to the lease agreement. [Para
32, 33][476-C-F]
1.2 In so far as disputes with regard to lease rent and/or
any other conditions of the deed of lease were concerned, the
High Court proceeded on the patently erroneous basis that the
appellant had not objected to the competence or the authority or
jurisdiction of the Arbitrator to entertain and decide disputes with
regard to lease agreement, ignoring the specific averments made
by the appellant in its counter statement. In its counter statement,
the appellant had specifically averred that the alternate prayer of
the respondent claiming increase in lease rent to Rs.35,000/-
per month with 20% increase in every three years was outside
the ambit of the arbitration proceedings. The appellant also
asserted categorically that, without challenging the registered
lease deed executed by it, the respondent could not seek an order
of the Arbitrator, modifying the terms of the lease deed. The High
Court also apparently overlooked the fact that the jurisdiction of
the arbitral tribunal to increase the monthly lease rent from
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
Rs.1750/- per month to Rs.35,000/- per month was specifically in
issue 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 bound
to act in terms of the contract under which it is constituted. An
award can be said to be patently illegal where the arbitral tribunal
has failed to act in terms of the contract or has ignored the specific
terms of a contract. An arbitral tribunal is entitled to interpret
the terms and conditions of a contract, while adjudicating a dispute.
An error in interpretation of a contract in a case where there is
valid and lawful submission of arbitral disputes to an arbitral
tribunal is an error within jurisdiction. [Para 44, 45][479-G; 480A-B]
1.4 The Court does not sit in appeal over the award made
by an arbitral tribunal. The Court does not ordinarily interfere
with interpretation made by the arbitral tribunal of a contractual
provision, unless such interpretation is patently unreasonable or
perverse. Where a contractual provision is ambiguous or is
capable of being interpreted in more ways than one, the Court
cannot interfere with the arbitral award, only because the Court
is of the opinion that another possible interpretation would have
been a better one. [Para 46][480-C]
1.5 There is no finding by the arbitral tribunal that any
condition of the dealership agreement was unconscionable and
the arbitral tribunal has not interfered with termination of the
dealership agreement. The appellant and the respondent entered
into the lease agreement with their eyes open. The respondent
had the option not to lease out its property to the appellant. The
situation of an owner of property, executing a lease agreement in
respect of his property cannot be equated with a contract of
employment executed by and between an employee and a mighty
employer, where the employee has little option but to accept the
terms and conditions offered by the employer. [Para 57, 58][483C-E]
1.6 The impugned judgment of the High Court is set aside.
The impugned judgment of the District Court insofar as the same
pertains to lease rent and lease period is also set aside. The
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impugned award dated 04.11.2010 is set aside to the extent that
the Arbitrator has increased the monthly lease rent of the land in
question from Rs.1750/- to Rs.10000/- with 10% increase after
every three years w.e.f. the date of the termination of the
dealership and to the extent the Arbitrator has reduced the period
of lease from 29 years to 19 years and 11 months. [Para 60,
61][484-A-C]
MD. Army Welfare Housing Organization v. Sumangal
Service (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 Limited
and Anr. v. Brojo Nath Ganguly and Anr. (1986) 3 SCC
156 : [1986] 2 SCR 278 - held inapplicable.
Rahul Yadav & Anr. v. Indian Oil Corporation Ltd. &
Ors. (2015) 9 SCC 447 : [2015] 7 SCR 978; Mukund
Swarup Mishra v. Union of India (UOI) and Ors. (2007)
2 SCC 536 : [2007] 1 SCR 825; PSA SICAL Terminals
Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar
Port Trust Tuticorin and Ors. (2021) AIR 4661;
Ssangyong Engineering and Construction Co. Limited
v. National Highways Authority of India (2019) 15 SCC
131 : [2019] 7 SCR 522; Satyanarayana Construction
Co. v. Union of India and Ors. (2011) 15 SCC 101 -
referred to.
Constitutional Supremacy-A Revisit, Essays on
Constitutionalism, Rule of Law & Constitutional
Adjudication by Mr. V. Sudhish Pai - referred to.
Case Law Reference
[2015] 7 SCR 978
referred to
Para 15
[2007] 1 SCR 825
referred to
Para 20
[2014] 13 SCR 895
distinguished
Para 42
[2019] 7 SCR 522
referred to
Para 50
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
[2003] 4 Suppl. SCR 385
relied on
Para 53
[1986] 2 SCR 278
held inapplicable
Para 55
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 837838 of 2022.
From the Judgment and Order dated 11.09.2015 of the High Court
of Judicature at Bombay in Arbitration Appeal No. 19 of 2013 and
Arbitration Appeal No. 39 of 2013.
Amit Meharia, Ms. Tannishtha Singh, Abinash Agarwal, Ms. Neha
Maniktala, M/S. Meharia & Company, Advs. for the Appellant.
Mrs. V. D. Khanna, Adv. for the Respondent.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
Leave granted.
2. These appeals are filed by Indian Oil Corporation Limited against
a judgment and order dated 11th September 2015 passed by the High
Court of Judicature at Bombay partly allowing Arbitration Appeal No.19
of 2013 filed by the Respondent and dismissing Arbitration Appeal No.39
of 2013 filed by the Appellant.
3. The facts giving rise to these appeals are stated very briefly
hereinafter.
4. The Appellant took a plot of land, hereinafter referred to as
"the said premises", on lease from the Respondent for a term of
29 years, pursuant to a deed of lease dated 20th September 2005 which
was duly registered, in order to set up a retail outlet for sale of its petroleum
products.
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 more
particularly described in the Schedule hereinbelow given
together with the Structures and Building now standing thereon
or that may be hereafter erected thereon by the LESSEE TO
BOLD the premises hereby demised I hereinafter for the sake
of brevity referred to as the ("DEMISED PREMISES") unto
the LESSEE for a term of 29 (TWENTY NINE years,
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commencing from the 20th day of SEPTEMEBR 2005
renewable and determinable as hereinafter provided yielding
and paying thereof during the said term monthly and the
proportionately for any part of a month the rent of Rs. 1750 /
- (RUPEES ONE THOUSAND SEVEN HUNDRED AND FIFTY
only) to be paid without any deduct on or before the 15th day
of each and every calendar month."
6. The deed of lease, hereinafter referred to as "the lease
agreement" contained, inter alia, the following terms and conditions:-
"2) THE LESSEE DOTH HEREBY COVENANT WITH THE
LESSOR/S AS FOLLOWS:
i)
Lease Rent will be Rs. 1750 /- (RUPEES ONE
THOUSAND SEVEN HUNDRED AND FIFTY Only) per
month.
3) Lease Period will be 29 years from 15/04/2005 with
further renewal by mutual consent.
...
4.) (e) To use or permit to be used the BUILDINGS AND
SRUCTURES to be constructed on the DEMISED PREMISES
for any and all lawful purposes as may be permitted by the
Authorities from time to time including for storing, selling or
otherwise carrying on business in Petrol, Diesel, Petroleum
Products, oil and kindred motor Accessories, Petrol Filling
Service and Lubricating Station etc.
...
(i) Subject to the LESSOR/S covenant hereinafter contained
(and the Rights of the LESSE/S interest in the said DEMISED
PREMISES as mentioned hereinafter), to deliver and yield up
the DEMISED PREMISES at the expiration or sooner
determination of the said term as herein provided together --
all the LESSOR/S fixtures and fittings in such state and
condition as the same were in, when the possession was taken
of 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 or
irresistible fierce or accident expected). All additions,
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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alteration, installations, (fittings and fixtures which during
the said term or any renewal thereof belong to and revert to
the LESSEE who shall be entitled to take away the same
provided the DEMISED PREMISES are restored to their
original state and conditions and the LESSOR/S will not have
any right, title and interest thereon nor shall he/she/they be
entitled to retain or appropriate any part thereof.
...
3) (b) That on the LESSEE paying the rent hereby reserved
and observing and performing all the several Covenants,
conditions and Agreements hereinbefore contained and on its
part to be observed and performed the LESSEE shall peaceably
hold and enjoy the DEMISED PREMISES during the said and
any renewal/s thereof without any let or interruption by the
LESSOR/S or by any persons lawfully or equitably claiming
through, under or in trust for the LESSOR/S.
...
4)(a) ..... If the Rent hereby reserved or any part thereof shall
be in arrears for a period of one year after becoming payable
and after being demanded or if the LESSEE to be observed
and performed their and in that event it shall be lawful for
the LESSOR at any time thereafter to re-enter upon the said
premises or any part thereof in the name of the whole and to
take action to possess and enjoy as in all their former state
and interest Provided always and it is hereby agreed and
declared that the Power of Re-entry hereinabove contained
shall not be exercised unless and until the LESSOR/S shall
have first given to the LESSEES 90 days' Notice in writing
pointing out the Breach in respect of which the right to ReEntry is exercised and the LESSEE shall have failed to remedy
the breach within a reasonable period of not less than 90
days thereafter. ....
...
(e) The LESSEE shall be entitled to ASSIGN, TRANSFER,
SUBLET, UNDERLET or part with the Possession of the
DEMISED PREMISES or any part thereof to any person
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above name whomsoever it chooses without the consent of
the LESSOR.
(f) The LESSEE shall be entitled to appoint, remove, reappoint,
change and substitute any dealers, agents, licensees and other
authorized representatives on and in respect of the DEMISED
PREMISES without the consent OF THE LESSOR.
......
(n) PROVIDED ALWAYS AND IT IS AGREED AND
DECLARED that at the expiration of the said Term of 30
years this LEASE will be renewed for a further term by mutual
consent. The renewed lease will be on the rents, conveyance,
conditions and Agreements to be mutually agreed upon
between the Parties.
...
5. Any dispute or difference of any nature whatsoever
regarding any Right, liability, act, omission on account of any
of the parties hereto arising out of or in rein-tion to these
shall be referred to the sole Arbitrator of the Managing Director
of the LESSEE and if the Managing Director is unable or
unwilling to act as a sole Arbitrator then the matter will be
referred to the sole Arbitrator of any other person designated
or nominated by such Managing Director in his place and
state writing to act as an Arbitrator and the LESSOR/S will not
be entitled to raise any objection to any such arbitration on
the ground that, the Arbitrator so appointed is an officer of
the LESSEE of that as such officer he had dealt with the matters
to which the disputes relates or had expressed his views
thereon, the Arbitrator to whom the matter originally referred
being transferred or vacating in his office being unable to
act for any reason such Managing Director as aforesaid at
the time of such transfer vacation of office or on his inability
to act shall nominate as designate another person to act as
an Arbitrator pursuant to this clause and such other person
shall be entitled to proceed with the reference from the point
at which it was left by his predecessor. It is expressly agreed
that no person other than the Managing Director of the
LESSEE as aforesaid shall act as an Arbitrator and if for
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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[2022] 16 S.C.R.
any reason that is not possible, the matter shall not be referred
to Arbitration at all. The Award of the Arbitrator so appointed
as herein provided shall be final, conclusive and binding on
both the Parties and such the Arbitration shall be held subject
to and in accordance with the Provisions of the ARBITRATION
ACT 1940, and any Statutory Modification enactment thereof."
7. The Appellant set up an A site retail outlet at the said premises
making an investment of around Rs.50 lakhs. The Respondent was
appointed a dealer of the said retail outlet and a dealership agreement
dated 15th November 2006 was executed by and between the Appellant
and the Respondent.
8. The dealership agreement, inter alia,
provided:-
"AND WHEREAS the Corporation carries
on the business of refining and sale of
petroleum products and more particularly
of Motor Spirit (MS) and High Speed Diesel
Oil (HSD):
AND WHEREAS the Corporation is the
Owner/Lessee/Tenant/licensee of a Plot of
land and is the Owner/Lessee/Tenant/
licensee of the superstructures thereon more
particularly described in the First Schedule
hereunder written and of the structures
thereon (Hereinafter collectively referred to
as "the Premises") and has installed and/
or is about to install at and under the said
premises the apparatus and equipment
described in the Second Schedule hereto
(hereinafter called "the Outlet")
WHEREAS at the request of the Dealer, the
Corporation has agreed to appoint the
Dealer as its Dealer for the retail sale or
supply at the said premises of certain
petroleum products on the terms and
conditions hereinafter contained.
....
Recitals
1st Schedule
2nd Schedule
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2.This agreement shall remain in force for
a period of fifteen years from 15th day of
Nov' 2006 and continue thereafter for
successive periods of one year 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 shall stand cancelled revoked,
provided that nothing contained in this
clause and prejudice the rights of either of
the parties hereto to terminates this
agreement earlier in exercise of their rights
under any of the provisions contained in
this agreement and/or the rights of the
Corporation to stop and/or suspend and/
or restrict the supplies to the Dealer and/
or the sales from the premises by the Dealer
pursuant to the provisions contained in that
behalf in this Agreement.
...
4. The Corporation reserves the right
without reference to or consent of the
Dealer to appoint one or more additional
Dealer/s in the same town/area or location
and such additional Dealer/s shall be
entitled to make sales of the products
without any objection from the Dealer and
the Dealer shall not be entitled to make any
claim for remuneration, commission or
allowance whatsoever in respect of the sales
made by such additional Dealer/s and/or
sales made by the Corporation through such
additional Dealer/s.
...
7.(a) The Dealer undertakes that he and
his servants and agents will observe and
Period
Corporation's
right to appoint
additional
Dealer/s
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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[2022] 16 S.C.R.
perform the provisions of the Petroleum Act,
1934 and the Explosives Act, 1884 and any
statutory re-enactment or modification
thereof for the time being force and all rules
and regulations made thereunder and all
other Government or Municipal Local or
similar Acts, Laws, Regulations and byelaws, as may be in force from time to time
relating to the Dealer's business in the said
products and to the storage, receipt and
transportation and other related matters as
contemplated under this Agreement and all
requisitions and requirements of all
authorities appointed under the foregoing
enactment, rules or regulations. If there is
any violation on the part of the Dealer, his
servants and agents of the aforesaid
provisions or statutory rules and
regulations, the Corporation will have the
absolute right to discontinue the supplies
and take any other action including the
termination of this Agreement as the
Corporation may at its absolute discretion
think fit.
(b) The Dealer shall also be solely
responsible
for
any
breach
or
contravention by himself, his employees,
agents of any Acts, rules, regulation or byelaws of the central and/or State Government
and/or Municipal Local and/ or other
authorities as may be applicable to the
business including without prejudice to the
generality of the foregoing, the concerned
authorities respectively appointed under the
Petroleum Act, Payment of Wages Act,
Shops and Establishments Act, Factories
Act and the Workmen's compensation Act.
The Explosives Act, 1884 or any other Act
or Statutory Rules, Regulations or ByeThe Petroleum
Act
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Laws made thereunder and/ or applicable
from time to time to the business of storage
and sale of products and servants, workmen
and persons engaged in connection
therewith and the corporation shall not be
responsible in any manner for any liabilities
arising out of non-compliance by the Dealer
with the same.
...
8(e) For the use of the said premises
including the construction thereon and
outfit, the Dealer shall pay to the
Corporation a licence fee as may be fixed
and recovered or deducted in the manner
as may be decided by the Corporation, at
its sole discretion and without any previous
notice to the Dealer shall from time to time
and at all times be entitled to increase or
revise or modify the said licence fee. ...
...
8(j) It is understood by the Dealer that the
premises mentioned in the First Schedule
hereunder writer are Public Premises within
the meaning of the provisions of the Public
Premises (Eviction of Unauthorized
Occupants).
...
10. It is specifically agreed and declared
that the basic condition of the grant of the
Dealership rights by the Corporation to the
Dealer herein is that the 'Dealer hereby
agreed, undertakes and covenant to uplift
and pay for the following minimum
quantities of the product per month as
specified hereunder.
Licence Fee
Dealer to
safeguard
Corporation right
in the premises
Minimum
quantity/sale
Targets
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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PRODUCTS
QUANTITY
MS (Petrol)
30 KLS
HSD
150 KLS
MOTOR OIL/GREASE
KL/KG
Other Products viz.
The Corporation shall have the absolute
right to revise the aforesaid minimum
quantities/sale targets from time to time by
notice in writing and on every such revision
this clause shall be read and construed as
if such revised figures had been mentioned
herein instead of those hereinabove setout.
It is also specifically agreed that in the
event of the Dealer not achieving the
aforesaid minimum quantities at any time
during three out of six consecutive months
during the currency of this Agreement, the
Corporation
shall
be
entitled,
notwithstanding any acquiescence or
waiver of this condition in respect of
anyone
or
more
months
and
notwithstanding any other provision herein
contained, to terminate this Agreement by
giving 30 days' notice in writing to the
Dealer.
...
15. Notwithstanding anything to the
contrary herein contained the Corporation
shall be at liberty upon breach by the
Dealer of any covenant in this Agreement
to top and/or suspend forthwith all supplies
to the Dealer and/ or sales from the premises
by the Dealer for such period or periods
as the Corporation may think fit, and such
right of stoppage and/or suspension of
supplies shall be in addition to and/or
Corporation's
right to suspend
supplies
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without prejudice to any other right or
remedy of the Corporation under this
Agreement or Law. For the purpose of this
clause, the General Manager of the
Corporation for the time being at Mumbai
shall be the Sole Judge as to whether a
breach of any covenant of this agreement
has been committed by the Dealer. The
Dealer shall not be entitled to claim any
compensation or damage from the
Corporation on account of any such
stoppage and/ or suspension of supplies.
...
17. ......The Corporation shall have the
right to exercise at its discretion at any time
and from time to time quality control
measures for products marketed by the
Corporation and lying with Dealer. The
opinion of the General Manager of the
Corporation for the time being at Mumbai
as to whether any product of the
corporation has been contaminated and/
or adulterated shall be final and binding
upon the Dealer.
In the event of the said General
Manager finding that the contamination
and/or adulteration of product has been
due to any act or default or negligence of
the Dealer or of his servants or agents, the
Corporation shall have the right, without
being bound to do so, to remove the
contaminated/ adulterated product and to
destroy or otherwise deal with the same
without making any payment therefor to the
Dealer and without prejudice to the
Corporation a right to terminate this
Agreement forthwith.
...
Product
Specification/
Conamination/
adulteration
Terms of
payment
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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SUPREME COURT REPORTS
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21. It shall be a paramount condition of
this Agreement that the Dealer himself (if
he be an individual) or both partners of
the Dealer firm (if the Dealer is a
partnership firm consisting of two partners
only) or the majority of the partners of the
Dealer firm (if the Dealer is a firm consisting
of more than two partners) or the majority
of the office bearers / elected members of
the Dealer Ço-operative Society (if the
Dealer is a Co- operative Society) or the
Managing/whole time Directors (if the
Dealer is a Private Limited Company), as
the case may be shall ordinarily be resident
in India and shall take an active part in the
management and running of the Dealership
and shall personally supervise the same and
shall not under any circumstances do so
through any other person firm or body
either as 'Benami' or through any 'Power
of Attorney' or otherwise .
...
42. The Dealer shall at all times faithfully,
promptly and diligently observe and
perform and carry out at all times all
directions, instructions, guidelines and
orders given or as may be given from time
to time by the Corporation or its
representative(s) on safe practices and
marketing discipline and/or for the proper
carrying on of the Dealership of the
Corporation. The Dealer shall also
scrupulously observe and comply with all
laws, rules, regulations and requisitions of
the Central/State Government and of all
authorities appointed by them or either of
them including in particular the Chief
Controller of Explosives, Government of
Working
Dealer
Dealer to
comply with
Corporation's
directives
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India and/or any other local authority with
regard to the safe practices.
43. The Corporation by its officers,
representatives or servants will be entitled
at all times to enter upon the premises and
inspect the management of the retail outlet
by the Dealer in all respects and the Dealer
shall be bound to render all assistance and
give all information to the Corporation and
its duly authorized representatives in that
behalf and produce to the Corporation and/
or its duly authorized representatives in that
behalf whenever required to do so Invoices/
Cash Memos for all purchases and receipts
for all payments which it is the Dealer's duly
to make whether under the terms of this
Agreement or otherwise.
Forthwith Termination
...
45. Notwithstanding anything to the
contrary herein contained, the Corporation
shall be at liberty at its entire discretion to
terminate this Agreement forthwith upon or
at any time after the happening of any of
the following events namely:-
a) If the Dealer shall commit a breach or
default of any of the terms, conditions,
covenants and stipulations contained in
this Agreement,...
...
61.(a) Any dispute or difference of any
nature whatsoever, any claim, cross-claim,
counter-claim or set-off or regarding any
right, liability, act, omission or account of
any of the parties hereto arising out of or
in relation to this agreement shall be
Corporation's
right to inspect
management of
dealership
Forthwith
Termination
Arbitration
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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referred to the sole arbitration of the
Director (Marketing) of the Corporation
who may either himself act as the Arbitrator
or nominate some other officer of the
Corporation to act as the Arbitrator. The
Dealer will not be entitled to raise any
objection to any such Arbitrator on the
ground that the Arbitrator is an Officer of
the Corporation."
9. There can be no dispute that the Lease Agreement and
Dealership Agreement are distinct agreements independent of each other.
This is evident from the terms and conditions of the respective
agreements. While the lease agreement was for a fixed period of 29
years from 15th April 2005, after which the lease could be extended by
mutual agreement on mutually agreed terms and conditions, the dealership
agreement was for a period of 15 years from 15th November 2006 and
to continue thereafter for successive periods of one year each, until
determined by the other party.
10. Furthermore, the lease agreement specifically authorized the
Appellant to sublet, underlet, assign or transfer possession of the said
premises to any person. The lease agreement also reserved on the
Appellant the right to appoint, remove, reappoint, change or substitute
any dealers, agents, licensees or other authorized representatives of
the Appellant on and in respect of the said premises, without the consent
of the lessor, that is, the Respondent.
11. The dealership agreement was inherently terminable whereas
the lease agreement as stated above was for a fixed period of 29 years
from the date of execution thereof. Clause 3(b) of the lease agreement
specifically provided that, on the lessee paying the rent as per the lease
agreement and performing its conditions, it would be entitled to peaceably
hold and enjoy the said premises without any interruption by the lessor/
s or any person claiming through the lessor/s.
12. Distinctness of the dealership agreement from the lease
agreement is also apparent from the obligation imposed by the dealership
agreement on the Respondent to pay a licence fee for use of the said
premises demised by the Respondent to the Appellant.
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13. While the lease agreement provided for reference of disputes
to the Managing Director of the Appellant for arbitration and if the
Managing Director was unable or unwilling to act as a sole Arbitrator,
then the sole arbitration of any other person designated or nominated
by the Managing Director, the dealership agreement provided for reference
of disputes to the sole arbitration of the Director (Marketing) of the
Corporation who might either himself act as the Arbitrator or nominate
some other officer of the Corporation to act as the Arbitrator.
14. The lease agreement expressly provided that disputes under
the said agreement were not to be referred to any person other than the
Managing Director of the Appellant, and if for any reason that was not
possible, the matter was not to be referred to arbitration at all. On the
other hand, as stated above, disputes under the dealership agreement
were referable to the Director (Marketing) of the Appellant who was
debarred from entertaining any reference of dispute under the lease
agreement.
15. The learned Additional Solicitor General, Ms. Madhavi Diwan,
appearing on behalf of the Appellant referred to a judgment of this Court
in Rahul Yadav and Another v. Indian Oil Corporation Limited and
others1, where this Court clearly held that a dealership agreement by
which the lessor of a land was appointed a dealer was distinct and
independent from the lease agreement by which the land on which the
outlet was installed, had been demised to the Appellant.
16. In Rahul Yadav v. Indian Oil Corporation (supra), this Court
held:-
"18. We have referred to the clauses in extenso to highlight
that the lessee had entered into an agreement of lease with
the appellant with immense liberty and the lease deed does
lay down that the lessee has the freedom to sublet and appoint
another dealer. The lease would remain in force till the
dealership of the appellant continued and the licence
remained in vogue. At this juncture, it is pertinent to reproduce
certain clauses of the dealership agreement which would
clearly spell out the purpose. They read as follows:
"2. The Corporation do hereby grant to the Dealer leave
and licence and permission for the duration of this
1 (2015) 9 SCC 447
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
Agreement to enter on the said premises and to use the
premises and outfit for the sole and exclusive purpose of
storing, selling and handling the products purchased by
the Dealer from the Corporation, save as aforesaid, the
Dealer shall have no right, title or interest in the said
premises or outfit and shall not be entitled to claim the right
of lessee, sub-lessee, tenant or any other interest in the
premises or outfit, is being specifically agreed and declared
in particular that the Dealer shall not be deemed to be in
exclusive possession of the premises.
3. This Agreement shall remain in force for five years from
14th day of May, 2002 and continue thereafter for
successive periods of one year 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
licence granted as aforesaid shall stand cancelled and
revoked but without prejudice 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 prejudice the rights of the
Corporation to terminate this Agreement earlier on the
happening of the events mentioned in Clause 56 of this
Agreement.
***
7. Nothing contained in this Agreement shall be construed
to prohibit the Corporation from making direct and/or
indirect sales to any person whomsoever or from
appointing other dealers for the purpose of direct or
indirect sales at such places as the Corporation may think
fit. The dealer shall not be entitled to any claim or allowance
for such direct or indirect sales."
19. It is appropriate to mention here that Clause 56 of the
said agreement stipulates that notwithstanding anything to
the contrary containing before the said clause, the
Corporation would be at liberty to terminate the agreement
forthwith upon any time after happening of certain events.
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The conditions are manifold. We may, for the sake of
completeness, reproduce two conditions:
"(h) If the Dealer does not adhere to the instructions
issued from time to time by the Corporation in connection
with 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 or
temper with the quality of any of the Corporation's
products."
20. On a plain reading of the aforesaid agreement, it is
clear as noon day that it has no connection whatsoever
with the lease agreement. Both the agreements are
independent of each other. The appellant was a dealer
under the lessee, that is, the Corporation. The dealership
is liable to be cancelled on many a ground. In case there is
a termination, dealership is bound to be cancelled and at
that juncture, if the lease deed is treated to have been
terminated along with the dealership, it will lead to a
situation which does not flow from the interpretation of the
instruments. The dealership agreement has been terminated
because of the decision rendered by this Court in Mukund
Swarup Mishra [(2007) 2 SCC 536]. The consequence of
cancellation of the dealership is a sequitur of the judgment.
The inevitable consequence of that is that the appellant
has to vacate the premises and the Corporation has the
liberty to operate either independently or through another
dealer. The appellant cannot be allowed to cause
obstruction or create an impediment. The submission that
the appellant entered into the lease agreement at a monthly
rent of Rs 10,000 as it was given the dealership is a
mercurial plea, only to be noted to be rejected. The
dealership was availed of as has been held by this Court
in an inapposite manner. In such a situation, consequences
are to be faced by the appellant."
17. It appears that during a routine inspection on 17th April 2008
certain irregularities were noticed with regard to functioning of the retail
outlet of which the Respondent had been appointed dealer.
IOCL THR. ITS SR. MNGR. v. M/S SHREE GANESH PETROLEUM
RAJGURUNAGAR THR. ITS PROP. MR. LAXMAN DAGDU THITE
[INDIRA BANERJEE, J.]
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
18. By a letter dated 17th April 2008, the Appellant directed the
Respondent not to carry on further sales from the said outlet. Thereafter,
a notice dated 18th April 2008 was issued to the Respondent calling upon
the Respondent to show cause why action should not be taken against
the Respondent for irregularities which amounted to violation of the
Marketing Discipline Guidelines (MDG) 2005 issued by the Ministry of
Petroleum and Natural Gas, Government of India and Public Sector Oil
Marketing Companies.
19. The Appellant also suspended the sale and supplies to the
retail outlet run by the Respondent. By a letter dated 21st April 2008, the
Respondent replied to the show cause notice admitting the irregularities
alleged.
20. By a letter dated 20th August 2008, the Appellant terminated
the dealership of the Respondent, called upon the Respondent to vacate
the retail outlet and hand over peaceful possession thereof to the Appellant
and also to settle accounts with the Appellant.
21. The Respondent appealed to the Appellate Authority of the
Appellant against the order of termination dated 20th August 2008. By
an order dated 17th July 2009, the Appellate Authority of the Appellant
dismissed the appeal of the Respondent.
22. By a letter dated 24th August 2009, the Respondent invoked
the arbitration clause in the dealership agreement and requested the
Director (Marketing) of the Appellant to appoint an Arbitrator.
23. The Director (Marketing) of the Appellant appointed Mr. B.L
Parihar as Arbitrator in terms of the dealership agreement, by an order
dated 9th November 2009.
24. The Respondent filed its Statement of Claims before the learned
Arbitrator challenging the order of termination of the dealership
agreement.