Arbitrator Holds Termination Of Dealership Illegal, Telangana High Court Directs IOC To Restore Dealership

The Telangana High Court has directed the Indian Oil Corporation to restore the dealership in favour of Venkateshwar Service Station holding that the arbitrator cannot pass an restoration of dealership order owing to section 14(1)(c) of the Specific Performance Act and when the arbitrator held that termination was illegal, the Corporation was bound to consider the application for restoration.

Justice Surepalli Nanda has passed the order in a set of Writ Petitions filed by the petitioner challenging the actions of Indian Oil Corporation in terminating the dealership awarded in favour of the petition; and the subsequent rejection of restoration of dealership request, despite the arbitration award being in favour of the petitioner.

The Bench held " This Court is of the firm opinion that the Respondent Corporation failed to understand that the Arbitrator had his own limitations in directing for restoration of dealership with the Petitioner as per mandate in Sec.14(1) of the Specific Relief Act, 1963 and left it open to the Petitioner to persue the remedy available to the Petitioner very clearly observing and holding the termination of the dealership of the Petitioner as invalid since the Petitioner had not violated the relevant clauses of the dealership agreement."

The Corporation contended that the sole arbitrator while passing the award had relied on the judgment passed by the Supreme Court in Amritsar Gas vs. Indian Oil Corporation and held that as per section 14(1) of the Special Relief Act, the petitioner will not be entitled to restoration and awarded a compensation instead. Section 14(1)(c) states that any contract that is determinable cannot be enforced.

The Corporation accepted the order passed by the Arbitrator and issued a cheque to the petitioner, but the same was not accepted and returned. Lastly, the Corporation stated that since the petitioner had not challenged the award it had reached finality, and at this stage, the petitioner could not approach this Court by way of a Writ seeking restoration.

The petitioner on the other hand contended that the Corporation under the false pretext that the petitioner was filling unidentified substances in the underground tank had terminated the Contract. They stated that they had been acquitted in all criminal proceedings that arose on account of the misunderstanding; and, the Arbitrator too, had passed an order in their favour. However, without taking said facts into consideration, the Corporation had rejected its application for restoration of the dealership. They stated that the Corporation in gross violation of the arbitration award had denied the petitioner and his children their sole source of livelihood thereby infringing upon their fundamental rights.

The petitioner stated that after passing of the arbitration award, when the request for restoration was rejected for the first time, the petitioners filed the first writ petition. In the petition, the court passed interim directions, directing the Corporation not to award the dealership in favour of a third-party.

During the pendency of the writ, the Corporation, once again considered the request of the petitioner and rejected the request, compelling the petitioner to file the second writ challenging the termination and the second rejection order. Both Writs are being disposed of together.

The Bench observed that:

"the Respondent Corporation reiected the Petitioner's representation..relying on the same set of earlier allegations which were already decided as illegal by the Arbitrator with clear findings in favour of the Petitioner.. totally ignoring the fact that the Petitioner had been acquitted in the criminal case registered against the Petitioner. This Court also opines that the order impugned dt. 21.07.2011 passed by the 2nd Respondent herein failed to understand the limitations of the Arbitrator in granting relief of restoration of dealership of the Petitioner as per mandate in Section 14(1) of the Specific Relief Act, 1963."

The Bench noted that the Corporation had rejected the request of the petition in a cryptic manner stating 'public interest'. The Bench also noted that the Corporation failed to understand the restrictions of an Arbitrator, and despite the arbitrator giving a clear finding and also leaving the petitioner recourse of pursuing the matter before the appropriate authority, rejected the application for restoration.

The Court noted that the Corporation is a State as per Article 12 and should act in a fair and reasonable manner leaving its actions or omissions open to be tested in the tenets of Article 14.

"This Court opines that the Respondent Corporation is a State under Article 12 of the Constitution of India is an instrumentality of the State and it is required to act in a fair and a reasonable manner and its acts and omissions are always liable to be tested on the touch stone of the tenets referable to Article 14 of Constitution of India."

The Court also noted that the judgment passed in Amritsar Gas v. Indian Oil Corporation will not be applicable to the present case, as in the said case, the arbitration award itself was challenged, whereas in the present case, the petitioner has accepted the Arbitration Award and has challenged the actions of the Corporation in not awarding restoration.

Owing to this, the termination order was set aside and the Corporation was directed to reconsider the application of the petitioner for restoration within 3 weeks.

WP. 12345 of 2011

WP 29128 of 2012

Counsel for petitioners: T. Praveen Kumar, Ponnam Akosh Goud.

Counsel for respondents: Deepak Bhattacharya.

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