Arbitral Award Must Be In Accordance With The Terms Of The Contract: Reiterates Telangana High Court

The Bench, consisting of Justice P. Naveen Rao and Dr. Justice G. Radha Rani, quashed an arbitral award on the ground that the clauses of the contract were not properly construed by the Arbitrator and that it was a non-speaking order which was rendered without discussing the contentions raised by the claimant.

The petitioner C. Srimannarayana was appointed as a dealer by respondent no. 1 Hindustan Petroleum Corporation Limited for operating a retail outlet. Under the contract entered into between the parties, the respondent company had an absolute right to terminate the contract on the happening of certain events. The respondent company issued a show cause notice to the petitioner proposing to terminate the dealership agreement on the ground that there was a change in the constitution of the petitioner firm without the written consent of the respondent company.

The petitioner submitted a reply to the show cause notice contending that the original position of the petitioner firm was restored. However, the respondent Hindustan Petroleum Corporation terminated the dealership agreement. Thereafter, the matter was referred to arbitration.

The Arbitrator passed an award holding that the termination of the dealership agreement by the respondent company was justified in terms of the dealership agreement. The Arbitrator rejected the claim of the petitioner for restoration of the dealership agreement.

The petitioner filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the District Judge to set aside the arbitral award and to restore the dealership agreement. The District Judge dismissed the application filed by the petitioner and confirmed the award passed by the Arbitrator. Against this order, the petitioner filed an appeal before the Telangana High Court.

The petitioner C. Srimannarayana submitted before the High Court that the Arbitrator as well as the District Judge had failed to deal with the contentions raised by the petitioner.

The petitioner contended that the defect committed by the petitioner under the dealership agreement, i.e., the reconstitution of the petitioner firm, was rectifiable under the dealership agreement and the said defect was rectified by the petitioner even before receiving the show cause notice. Hence, the petitioner averred that the termination of the dealership agreement was illegal.

The petitioner submitted that the award was passed by the Arbitrator without any reasons and the said award was non-speaking. The petitioner added that the District Judge did not appreciate the terms and conditions of the contract and failed to deal with the said contentions raised by the petitioner.

Hence, the petitioner contended that the award passed by the Arbitrator and the order of the District Court should be set aside.

The High Court observed that the petitioner had contended before the Arbitrator and the District Court that as per the relevant clause of the dealership agreement, the respondent company was bound to give time to the petitioner to remedy the breach of the covenants of the dealership agreement and that no such opportunity was given to him. The Court noted that the petitioner had averred that lapse of a considerable amount of time would amount to waiver of breach of the violations committed by the petitioner and hence the said dealership agreement could not be terminated by the respondent company. The Court observed that Arbitrator and the District Court had failed to address the said contentions raised by the petitioner.

The Court ruled that the arbitral award was devoid of any reasons and the contentions of the claimant/petitioner were not answered by the Arbitrator.

The Court thus held that the Arbitrator and the District Court failed to discuss the pleas taken by the petitioner with regard to waiver, estoppel and application of the relevant clause of the dealership agreement.

The Court observed that the Supreme Court in the case of ONGC Ltd. versus Saw Pipes Ltd. (2003) had held that the arbitral award must be in accordance with the terms of the contract and that for the construction of the contract, the intention of the parties must be gathered from the words used in the agreement.

The Court held that the terms of the contract were not considered by both the Arbitrator as well the District Judge and that they failed to consider the contentions raised by the petitioner with respect to the same.

The Court ruled that the Arbitrator and the District Judge failed to appreciate that the appellant had remedied the breach committed by him as per the relevant clause of the distribution agreement. The Court added that the award passed by the Arbitrator was a non-speaking order which was rendered without discussing the contentions raised by the petitioner/claimant and that the District Judge also failed to address the contentions raised by the petitioner.

The Court thus allowed the appeal and set aside the order passed by the District Judge confirming the award passed by the Arbitrator.

Case Title: C. Srimannarayana versus Hindustan Petroleum Corporation Limited, SECBAD and Another

Citation: 2022 LiveLaw (Tel) 43 

Dated: 22.02.2022 (Telangana High Court)

Counsel for the Appellant/Petitioner: Pratap Narayan Sangh

Counsel for the Respondent: Manu

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