JUDGMENT
R. Banumathi, J.
Page 2629
1. Aggrieved against the Order of the learned Single Judge in O.P.No. 295 of 2000 (dated 31.10.2003), setting aside the award passed by the Arbitrator, Bharath Petroleum Corporation Limited (BPCL) has preferred this Appeal.
2. The brief facts giving rise to this Appeal are as follows:
(i) The First Respondent is physically handicapped Ex-serviceman. LPG Distributorship was granted to the First Respondent in 1996 for supply of LPG Cylinders for household consumers in Saligramam Area. There were frequent complaints from customers due to market backlog. For shortage of 249 cylinders, a debit note for Rs. 3,73,500/- was raised on 31.07.1994 and part payment against the same was received from the First Respondent-Distributor on 08.01.1996 (Rs. 2,11,650/-) and not the entire amount. The balance amount of Rs. 1,66,850/- was due to the Company on account of SV/TV amount. Inspite of letters, which were duly acknowledged by the First Respondent-Distributor no amount was paid. When Senior Sales Officer of Appellant-Corporation had visited the godown and the showroom in the morning of 28.01.1997 and there were no signs of any distribution of refill cylinders. The godown and showroom were found to be closed and number of customers were waiting for making their refill bookings. The Distributorship was terminated as per Clause 27(g) and 27(n) of the Distributorship Agreement, by termination letter dated 21.02.1997. Aggrieved by the termination of Distributorship, the First Respondent-Distributor raised the dispute and the Second Respondent/Mr. S.K. Dutta, was appointed as the Sole Arbitrator.
(ii) Upon consideration of rival contentions of the parties in the light of terms of the Agreement, the learned Arbitrator found that the First Respondent-Distributor has admitted the default of making delayed payment. Since, there was default in making payment of the money, the learned Arbitrator has held that BPCL is within its right to terminate the Agreement and there were also other breaches, such as, shortage of cylinders and pressure regulators and inspite of notice given to the First Respondent-Distributor, the cylinders and pressure regulators were not returned to BPCL and the learned Arbitrator took the view that the termination was not wrongful.
(iii) Challenging the award, the First Respondent-Distributor has filed a Petition under Section 34 of the Arbitration Act, to set aside the award. Upon consideration of contention of both parties, the learned Single Judge set aside the award observing that the Appellant-Corporation is bound to act in accordance with Marketing Discipline Guidelines (MDG) for LPG marketing as formulated by three Page 2630 LPG Marketing Companies. The learned Single Judge took the view that the Appellant-Corporation has not followed the guidelines and proper procedure in dealing with the alleged irregularities or illegalities and the termination is in violation of principles of natural justice and also MDG.
3. Challenging the impugned judgment, Mr. R. Murari, the learned Counsel for the Appellant-Corporation has submitted that the irregularities fall under Clause 27(g) and 27(n) of the Distributor Agreement and the Arbitrator has rightly held that the termination was done according to the Rules and Guidelines. It was submitted that when the Arbitrator has upheld the termination, the learned Single Judge was not right in setting aside the award. Placing reliance upon 1991(1)(Vol.14 ) Arbitration Law Reporter 97 Indian Oil Corporation Limited v. Amritsar Gas Service and Ors. it was submitted that when the contract is terminable, which in its nature determinate, the learned Single Judge was not right in granting the relief of restoration of contract/restoration of Distributorship, which is against the principles.
4. Submitting that the scope of interference with award is very limited under Section 34 of the Arbitration Act, the learned Counsel for the Appellant-Corporation has further argued that when the Arbitrator has acted within the terms of reference, the learned Single Judge ought not to have set aside the award.
5. On behalf of the First Respondent-Distributor, Mr. R. Krishnamoorthy, the learned Senior Counsel has submitted that the First Respondent has duly explained the delayed payment due to his financial problems and any such delayed payment could only be a minor offence, which does not warrant termination of Distributorship. The learned Senior Counsel further urged that, when the Arbitrator has not taken note of MDG for LPG and the learned Single Judge having regard to the nature of irregularities rightly set aside the award and ordered restoration of Distributorship and the same cannot be interfered with.
6. In the light of contentions of both parties, we are required to determine the following points:
i. Exercising the power under Section 34 of the Arbitration Act, whether the learned Single Judge was justified in setting aside the award?
ii. The Distributorship Agreement being a contract, which in its nature determinable, can it be specifically ordered to be restored?
7. The terms and conditions of Distributorship are specified in the Agreement. Clause 27 of the Agreement provides for termination of the Agreement by the Corporation forthwith on the happening of any of certain specified events. In this case, the Distributorship Agreement was cancelled invoking Clause 27(g) and 27(n) of the Distributorship Agreement, which read as under:
27. Notwithstanding anything to the contrary herein contained, the Corporation shall also be at liberty at its entire discretion to terminate Page 2631 this Agreement forthwith upon or at any time after the happening of any of the following events, namely:
(g) if the distributor shall for any reason make default in payment to the Corporation in full or his outstandings appearing in the Corporation’s books of account beyond 4 days of demand by the Corporation.
(n) if the distributor shall either by himself or by his servants or agents commit or suffer to be committed any act which, in the opinion of the General Manager of the Corporation for the time being at Bombay whose decision in that behalf shall be final, is prejudicial to the interest or good name of the Corporation or its products, the General Manager shall not be bound to give reasons for such decision.
8. Insofar as the complaint of delay in making payment, it is seen the money which was due to be deposited with BPCL on 06.07.1996, 21.07.1996, 06.08.1996, 21.08.1996, 06.09.1996 and 21.09.1996 was in fact paid by First Respondent by demand draft only on 20.02.1997, 22.02.1997 and 03.03.1997.
9. Delay in making payment was admitted by the First Respondent-Distributor. But, the First Respondent-Distributor explained the delay saying that he faced some financial problems, on account of, which there was delay in payment of SV/TV amount and part payment was made on 20.02.1997 and 21.02.1997 by two demand drafts. The First Respondent has stated that to show his bonafide, he has also paid the balance amount of Rs. 87,108/- on 3.3.1997, even after termination of his Distributorship. As per the terms of agreement, the money collected by distributor from the customers of BPCL is to be deposited with Appellant-Corporation on fortnightly basis on the 21st of the month in respect of the first fortnight and on the 6th of the succeeding month in respect of the second fortnight and the same has been clearly stated in the letter dated 8.12.1986 issued by the Appellant-Corporation to the First Respondent even on the date of execution of the Distributorship Agreement (Vide Page 21, Paper Book Volume II). Admittedly, there was delay in making payment. This aspect has been well considered by the learned Arbitrator, while answering Issue No. 1, the Arbitrator has rightly held that the First Respondent has defaulted in sending the amount due to Appellant-Corporation on the due date.
10. As against the shortage of 249 cylinders, a debit note for Rs. 3,73,500/- was raised on 31.7.1994, and only part payment against the same was received from the First Respondent-Distributor on 8.1.1996. The responsibilities of the Distributor are described in the terms of agreement/’Bharatgas’ Manual. As per the terms of the Agreement, the ownership of the cylinders and pressure regulators belong to the Appellant-Corporation and the First Respondent is bound to account for the said cylinders and pressure regulators.
Page 2632
11. The First Respondent himself has admitted the shortage of cylinders. But, the First Respondent contended that few cylinders were stolen from the godown and certain cylinders were given to G. Mallika, when the First Respondent-Distributor was not in effective control over the Distributorship. In his letter dated 12.12.1997, the First Respondent has stated that one Gopalakrishnan, Assistant Commissioner of Sales Tax, had financed him through his wife G. Mallika and required a security from him and that he had an Agreement with the said G. Mallika strictly for financial Management. The said letter elaborates about the civil dispute between the First Respondent and the said G. Mallika. By a reading of the letter, it is seen that the said G. Mallika had obtained an interim exparte injunction restraining the First Respondent-Distributor from interferring with the Financial Management and that she had taken over the godown and office with all the documents and equipments.
12. Later, on the Application filed by the First Respondent-Distributor, the interim exparte injunction was vacated. The First Respondent (sic) has further alleged that even thereafter, he could not take possession and that he had obtained an injunction against the said Gopalakrishnan and his wife G. Mallika. When the authorised Distributor was entangled in a civil dispute with a third party regarding running of Distributorship, obviously, it would affect the distribution of LPG and consumer service act could not have been effectively carried out.
13. Mr. R. Krishnamoorthy, the learned Senior Counsel has submitted that the plea of the First Respondent-Distributor was not at all considered by the learned Arbitrator and the Arbitrator was not right in finding that the Appellant-Corporation was justified in invoking Clause 24(n) of the Distributorship Agreement. As per Clause 24(n) extracted earlier, when the Distributor either by himself or by his servants or agents commit or suffer to be committed any act which, in the opinion of the General Manager of the Corporation is prejudicial to the interest or good name of the Corporation or its products, the dealership could be terminated and the General Manager is not bound to give any reasons for such decision and such decision shall be final. When the First Respondent was entangled in civil dispute, that civil dispute must have obviously resulted in disruption of supply of LPG, which would evidently be prejudicial to the interest of the Appellant-Corporation. In our considered view, the Arbitrator has rightly held that the Appellant-Corporation was justified in invoking Clause 24(n) of the Distributorship Agreement and the termination was not wrongful.
14. As per Section 28(3) of the Act, in all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usage of the Trade applicable to the Transaction. By perusal of the award, we find that the Arbitrator has examined the matter in reference to the terms of the agreement. When the Parties are governed by the terms of Agreement, the learned Single Judge was not right in referring to MDG for LPG Marketing as formulated by the three LPG Marketing Companies. Such general MDG cannot prevail upon the terms of Agreement between Page 2633 the Appellant-Corporation and the Distributor. We are of the view that the learned Single Judge was not right in saying that the delay in making payment was only a minor offence and the punishment ought to have been,– warning for the first offence, fine of Rs. 2,000/- for the second offence, suspension for the third offence and termination has got to be issued only for the fourth offence.
15. The award can be set aside only on one or more of the seven grounds set forth in Section 31 of the Arbitration and Conciliation Act, 1996 (for short “Act”). So long as the Arbitrator has decided the matter in accordance with the terms of the contract and has acted within his authority and according to the principles of fair play, the award of the Arbitrator is ordinarily final and conclusive. The Arbitrator’s adjudication is generally considered binding between the Parties, for he is a Tribunal selected by the parties and the power of the Court to set aside the award is restricted to the instances set out in Section 34 of the Arbitration Act.
16. In Oil and Natural Gas Corporation Limited v. Saw Pipes Limited the Supreme Court has held that an award contrary to substantive provisions of law or the provisions of the Arbitration and Conciliation Act 1996 or against the terms of the contract would be patently illegal and if it affects the right of the parties, it would be subject to interference Under Section 34(2) of the Act. The Supreme Court has observed thus:
13. The question, therefore, which requires consideration is – whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. Under Sub-section (1)(a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be – whether such award could be set aside. Similarly, under Sub-section (3), the Arbitral Tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If the Arbitral Tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered. Similarly, if the award is a non-speaking one and is in violation of Section 31(3), can such award be set aside? In our view, reading Section 34 conjointly with other provisions of the Page 2634 Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn’t be set aside by the court. If it is held that such award could not be interfered, it would be contrary to the basic concept of justice. If the Arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34.
17. Further, in Oil and Natural Gas Corporation’s Case, the Supreme Court has considered the scope of interference of Arbitral Award on the ground of Public Policy in great detail and observed that the phrase ‘public policy of India” is not required to be given a narrower meaning and that wider meaning is required to be given, so as to prevent frustration of legislation and justice, the Supreme Court has held thus:
31. Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term “public policy” in Renusagar case 1994 Supp. (1) SCC 644 it is required to be held that the award could be set aside if it is patently illegal. The result would be -award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.
18. There exists a long catena of cases through which the law seems to be rather well settled that the reappraisal of evidence by the Courts is not permissible. In Ispat Engineering and Foundry Works v. Steel Authority of India Ltd. Their Lordships of the Apex Court referring to various other judgments of the Apex Court including Page 2635 Union of India v. Bungo Steel Furniture (P) Ltd. , has held that the Court had no jurisdiction to investigate into the merits of the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or not the Arbitrator has committed an error of law. The Court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties.
19. Holding that intervention of Court is envisaged in a few circumstances, like in case of fraud or bias by Arbitrators, violation of natural justice etc., in 2006(2) Arb.L.R.498(SC) Mc Dermott International INC. v. Burn Standard Co. Ltd. and Ors. the Supreme Court has held as follows:
55. The 1996 Act makes provision for the supervisory role of Courts, for the review of the arbitral award only to ensure fairness. Intervention of the Court is envisaged in few circumstances only, like, in case of fraud or bias by the Arbitrators, violation of natural justice, etc. The Court cannot correct errors of Arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the Court at minimum level and this can be justified as parties to the Agreement makes a conscious decision to exclude the Court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
20. While setting aside the award, the learned Single Judge has observed that the Arbitrator has given a go-by to the guidelines and it is violative of not only the fundamental principles of natural justice, but also the procedure and guidelines of the Corporation. As per Clause 23(c) of the terms of Agreement, except with the previous written consent of the Corporation, the Distributor shall not enter into any arrangement, contract or understanding, whereby the operations of the Distributor are or may be controlled/carried out or financed by any other person, Firm or Company, whether directly or indirectly and whether in whole or in part. Even according to the First Respondent, G. Mallika, has financed the First Respondent-Distributor and that the First Respondent-Distributor has entered into an Agreement with the said G. Mallika for Financial Management, for which, admittedly, there was no approval or written consent by the Appellant-Corporation. There was a civil dispute between the First Respondent and the said G. Mallika and both of them obtained injunction orders. When, there was a civil dispute and interim injunction was passed, the ultimate sufferers would be the consumers, resulting in deficiency in service of supply of LPG and dissatisfaction of the consumers. In such facts and circumstances, the learned Arbitrator has held that the Appellant-Corporation was justified in invoking Clause 24(n), for termination Page 2636 of the Distributorship Agreement. Unless, it is demonstrated to the Court that such reasonings of the Arbitrator are erroneous the Court cannot interfere with the award.
21. Observing that the order of termination of Distributorship is not legal and proper, the learned Single Judge has ordered restoration of Distributorship. Mr. R. Murari, the learned Counsel for the Appellant-Corporation has contended that in View of Clause 28, the Agreement is determinable in nature and it would fall Under Section 14(1) of Specific Relief Act, the same cannot be specifically enforced by the order of the Court. In support of his contention, the learned Counsel placed reliance on 1991 (1) (Vol.14) Arb. L.R. 97 Indian Oil Corporation Limited case cited supra.
22. Clause 28 permit either party without prejudice to the foregoing provision or anything to the contrary contained in the Agreement, to terminate the Agreement by giving 30 days notice to the other party, without assigning any reason for such termination.
23. Section 14(1)(c) of the Specific Relief Act provides interalia that the contract, which is in its natures determinable cannot be specifically enforced when there is a specific Clause authorising and enabling either parties to terminate the agreement in the event of happening of the events specified therein. In the present case, Clause 28 permitted either party “without prejudice to Clause 27 or anything to the contrary” contained in the agreement to terminate the agreement by thirty days notice to the other party without assigning any reason for such termination. We find that the Agreement being of a determinable nature is not specifically enforceable in view of Section 14(1)(c) of Specific Relief Act, which was not taken note of by the learned Single Judge, while ordering restoration of Distributorship Agreement.
24. In Indian Oil Corporation Limited case, the Supreme Court had an occasion to consider the terms of Agreement of Distributorship of Indian Oil Corporation. The said Agreement could also be terminated in accordance with the terms of Agreement as per Clauses 27 and 28. The Appellant was appointed as Distributor of LPG of Indian Oil Corporation and such Distributorship was terminated without notice and the Distributor had filed a Suit for Restoration and Damages. The Application was dismissed by all Courts below including High Court. In the SLP, the Supreme Court ordered reference to Arbitrator. The Arbitrator passed an award holding that the Firm was entitled to continuance of Distributorship and ordered restoration. Setting aside the award of the Arbitrator on the ground that there is an error of law apparent on the face of the record and that grant of relief, viz., restoration of Distributorship cannot be sustained Honourable Supreme Court has held as under:
12. …
This finding read along with the reasons given in the award clearly accepts that the distributorship could be terminated in accordance with the terms of the Agreement dated 1.4.1976, which contains Page 2637 the aforesaid Clauses 27 and 28. Having said so in the award itself, it is obvious that the arbitrator held the distributorship to be revokable in accordance with Clauses 27 and 28 of the Agreement. It is in this sense that the award describes the Distributor-ship Agreement as one for an indefinite period, that is, till terminated in accordance with Clauses 27 and 28. The finding in the award being that the Distributorship Agreement was revokable and the same being admittedly for rendering personal service, the relevant provisions of the Specific Relief Act were automatically attracted. Sub-section (1) of Section 14 of the Specific Relief Act specifies the contracts which cannot be specifically enforced, one of which is ‘a contract which is in its nature determinable’. In the present case, it is not necessary to refer to the other clauses of Sub-section (1) of Section 14, which also may be attracted in the present case since Clause (c) clearly applies on the finding read with the reasons given in the award itself that the contract by its nature is determinable. This being so granting the relief of restoration of the distributorship even on the finding that the breach was committed by the appellant- Corporation is contrary to the mandate in Section 14(1) of the Specific Relief Act and there is an error of law apparent on the face of the award which is stated to be made according to ‘the law governing such cases’. The grant of this relief in the award cannot, therefore, be sustained.
…
14. The question now is of the relief which ould be granted by the arbitrator on its finding that termination of the distributorship was not validly made under Clause 27 of the Agreement…. However, the arbitrator having held that Clause 27 was not available to the appellant-Corporation, the question of grant of relief on that finding has to proceed on that basis. In such a situation, the Agreement being revokable by either party in accordance with Clause 38 by giving thirty day’ notice, the only relief which could be granted was the award of compensation for the period of notice, that is, 30 days. The plaintiff-respondent No. 1 is, therefore, entitled to compensation being the loss of earnings for the notice period of thirty days instead of restoration of the distributorship. The award has, therefore, to be modified accordingly. The compensation for thirty days notice period from 11.3.1983 is to be calculated on the basis of earnings during that period disclosed from the records of the Indian Oil Corporation Ltd.
The facts of the present case are identical to the facts of the aforementioned decision of the Supreme Court inasmuch as the Distributorship Agreement in the instance case is also terminable by the Appellant-Corporation on the happening of certain events. In the present case also, the Agreement was terminable on the happening of certain events. There is no manner of doubt that the Contract by its nature, especially in view of Clause 28 is determinable in nature. The terms of Agreement being revocable at the Page 2638 instance of either parties, in our view, the learned Single Judge was not right in ordering restoration of Distributorship.
25. When the Arbitrator has analysed the rival contentions of parties in accordance with the terms of the Agreement, the learned Single Judge was not right in setting aside the award by referring to MDG. In our view, the award of the Arbitrator does not suffer from any patent illegality warranting interference and therefore, the judgment of the learned Single Judge is unsustainable.
26. For the foregoing reasons, the order of the learned Single Judge in O.P.No. 295 of 2000 dated 31.10.2003 is set aside and this Appeal is allowed. The award of the Arbitrator dated 15.9.1999 is confirmed. No costs.