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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.1007 OF 2009
Ms. Anila Gautam Jain, ]
Proprietress of M/s. Badal Agency, erstwhile ]
HP Gas Distributor, residing at 190/5, Kamal ]
Kunj, Station Road, Wadala (W), Mumbai-400031 ] ... Petitioner
Versus
Hindustan Petroleum Corporation Limited, ]
through its Chief Regional Manager,
ig ]
Navi Mumbai LPG Regional Office, ]
1st floor, Plot No.4/1, Near MMMT Depot, ]
Sector 20, Turbhe, Navi Mumbai 400 705. ] ... Respondent
Mr. Gautam Ankhad i/b M/s. Ashwin Ankhad & Associates for the
Petitioner.
Mr. Bhalwal i/b M/s. Vyas & Bhalwal for the Respondent.
CORAM: S.J. VAZIFDAR, J.
DATED : 30TH AUGUST, 2010.
ORAL JUDGMENT :
1. This is a petition under section 34 of the Arbitration and Conciliation
Act, 1996, to challenge the award passed by the sole arbitrator rejecting a
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substantial part of the Petitioner’s claim and allowing the Respondent’s
claims under various heads.
2. The Petitioner and the Respondent entered into an agreement dated
17th August, 2004, under which the Respondent appointed the Petitioner as a
dealer on a principal to principal basis for the sale of the Respondent’s LPG
in cylinders. It is common ground that the disputes and differences between
the parties were rightly referred to arbitration in view of the arbitration
agreement contained in clause 38 of the said agreement.
3. Even prior to the agreement dated 17th August, 2004, the Petitioner
had been appointed by the Respondent as a dealer. The appointment
continued thereafter under various similar agreements entered into between
the parties from time to time ending with the said agreement dated 17th
August, 2004. The agreement was for a period of five years from 28th
March, 2004 to 27th March, 2009.
4. The Respondent informed the Petitioner on several occasions that it
was dissatisfied with the manner in which the Petitioner was carrying out the
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dealership agreement. Ultimately, the Respondent served a show cause
notice dated 23rd January, 2008, alleging that the Petitioner had committed
various breaches of the terms and conditions of the agreement and, in
particular, clauses 5, 6, 10, 11, 24A, 28A, 28B(g), (h), (i) and (k) thereof.
The Respondent considered the reply filed by the Petitioner unsatisfactory
and, therefore, by a letter dated 3rd June, 2008, suspended the refill supplies,
took over possession of the premises owned by the Respondent and let to the
Petitioner on licence to operate the dealership agreement, and handed over
the same to a new dealer.
5. Aggrieved by the Respondent’s action, the Petitioner challenged the
same by filing a writ petition in this court. Pursuant to an order dated 4 th
September, 2008, the reference was made to arbitration.
6. By a letter dated 13th September, 2008, the Respondent terminated the
dealership agreement. The Petitioner raised various claims based on the
contention that the termination of the agreement was wrongful and illegal.
The Petitioner sought an award to quash and set aside the order of
suspension and termination and to direct the Respondent to restore the
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dealership agreement and possession of the said premises. In the alternative,
the Petitioner sought an order for payment of Rs.24,44,076.09 and a sum of
Rs.12,00,000/- for a minimum period of ten years towards reimbursement of
future losses assuming that the agreement would be renewed after its expiry.
7. The arbitrator, therefore, rightly considered the main question as to
whether the termination was wrongful and illegal. If the termination was
justified, the Petitioner’s claim would require to be rejected. The arbitrator
found the termination to be justified on various grounds. In other words, he
found the complaints and contentions of the Respondent regarding the
manner in which the Petitioner conducted the dealership agreement to be
justified. The arbitrator found that there were at least five substantial
breaches on the part of the Petitioner, which justified the Respondent
terminating the dealership agreement. Indeed, even if one of these grounds
can be sustained, the Respondent would be justified in terminating the
agreement. I, therefore, do not intend dealing with all the reasons mentioned
by the arbitrator. I will refer only to a few of them.
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8. The arbitrator found that there were repeated diversions of LPG refills
during February, 2005 to November, 2005, which was in violation of the
dealership agreement and, in particular, the clauses mentioned earlier. The
arbitrator found important the fact that the Petitioner had accepted that there
were diversions, but had blamed the same on the commercial establishments
and her own staff/delivery men for the same. The Petitioner contended that
it was not possible for her to check the illegal connections and her duty was
only to report the same to the Respondent who ought to have taken
necessary action to remedy the situation.
The arbitrator rejected this contention as a valid defence to the breach.
He posed the correct question viz. as to whose responsibility was it to arrest
the diversions of domestic cylinders to commercial establishments or to any
other non-existent, non-genuine customers. Clause 18 of the dealership
agreement reads as under :-
“18. In all contracts or engagements entered into
by the Delaer with the customers for sale of LPG and/orthe sale and/or installation and/or repairs of appliance
and/or connection thereof with LPG cylinders (filled or
empty) and/or refills and/or pressure regulators and/or
attached equipment the Dealers shall act and shall always
be deemed to have acted as a principal and not as an
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Corporation shall not in any way be liable in any manner
in respect of such contracts and/or engagements and/or inrespect of any act or omission on the part of the Dealer,
his servants, agents and workmen in regard to suchinstallation, sale, distribution, connections, repairs or
otherwise, the Dealer shall be bound to inform the
customers in writing of this provision, through
correspondence or at the time of enrollment, of thecustomer.”
9. The arbitrator construed the clause and held that the principal to
principal relationship between the parties was not limited only to non-
transfer of liabilities as contended on behalf of the Petitioner, but that it was
the total responsibility of the Petitioner to take all necessary steps to arrest
such diversions. The arbitrator emphasized the fact that the Petitioner’s own
case was that her delivery men were also responsible for the same.
10. The reasoning cannot be faulted. The clause expressly states that the
Respondent would not, in any way, be liable in any manner in respect of the
contracts between the dealers and the customers in respect of any act or
omission on the part not merely of the dealer/Petitioner, but also on the part
of the dealer’s/Petitioner’s servants, agents and workmen. The clause,
therefore, has been correctly construed. To say the least in favour of the
Respondent, the clause is certainly capable of being construed in that
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manner. Even if I were, therefore, to have interpreted the clause differently,
it would not have justified setting aside the reasoning on that ground.
11. The arbitrator has also held that even on general principles of law, the
Petitioner was responsible for the acts of her servants. It was held that the
Respondent could never be responsible for the acts of the Petitioner’s
servants. I agree.
12. It is pertinent to note that the Petitioner had herself in one of her
letters accepted the fact that the cylinders were being sold without refill
bookings. The arbitrator rightly rejected the contention that it is not the
Petitioner, but the Respondent who should be held liable for the same.
13. Based on this erroneous contention, the Petitioner refused to pay the
penalty levied upon her which was also contrary to the dealership
agreement.
14. Mr. Ankhad, the learned counsel appearing on behalf of the Petitioner
challenged the finding in this regard on the basis that the refill order reports
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were relied upon by the arbitrator in favour of the Respondent. Mr. Ankhad
submitted that the Respondent led no evidence to establish the truth of the
contents of the refill records.
15. Firstly, even it this contention is upheld, it would make no difference
for the reasons set out earlier. Secondly, the arbitrator weighed the evidence
and rightly proceeded on the basis of a balance of possibility regarding the
correctness of the contents of the refill audit reports. He did so on the basis
that the same were signed, not merely by the Respondent’s officials, but also
by the Petitioner. The Petitioner refuted the correctness thereof, only later.
The arbitrator is not bound by the strict rules of evidence. The Petitioner
was always present when the audit was being carried out and the reports
were signed by the Petitioner. The reliance upon the refill audit reports,
therefore, cannot be said to be perverse or unsustainable.
16. Thus, in view of the above finding itself, the Respondent was justified
in terminating the agreement. Repeated diversions of LPG refills was a
serious breach of the terms of the contract. The finding in this regard can,
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by no stretch of imagination, be said to be perverse on any ground
whatsoever.
17. The arbitrator also found that the Petitioner had not provided the
rebate to the customers. The arbitrator also upheld the termination on the
ground that there was shortage of cylinders. In this regard, he justifiably
considered important the fact that the Petitioner had herself accepted that
there was a shortage of 47 cylinders of 14.2 kg. and 156 cylinders of 19 kg.
The Petitioner had refused to pay for the same on the ground that the
Respondent had wrongly claimed that there was a shortage of 276 cylinders
of 19 kg. and that this was because no reconciliation of cylinders and
regulators was carried out since 1996. The Petitioner contended that it was
the Respondent’s responsibility to reconcile the stocks for verification and
payment. The Petitioner had requested for the same repeatedly, but the
Respondent had refused to do so.
The arbitrator upheld the Respondent’s contention that it was the
Petitioner’s responsibility to maintain the stock on a daily basis and to
submit the reconciled statement of cylinders and regulators on a
weekly/regular basis for verification.
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18. The arbitrator once gain posed the correct question by observing that
the crux of the issue is to find out who was responsible for the reconciliation
of cylinders and regulators and to prepare the reconciliation statement. He
then set out clause 24 of the dealership agreement which reads as under :-
“24. All correspondence, accounts returns of stocks and
sales, and such other documents as may be required by
the Corporation shall be made written neatly andcorrectly in English or Hindi language and all accounts
shall be produced for inspection of the Corporation’srepresentatives at any time when called upon by them to
do so. The Dealer shall send to the Corporation either
fortnightly or at such other intervals as the Corporation
from time to time determine a report of all sales effected
by the Dealer and of the unsold stocks in his custody inthe form to be prescribed by the Corporation.”
The arbitrator construed the clause to fix the responsibility on the
Petitioner to prepare and submit the statements. The reasoning is correct. It
is, in any event, not unsustainable or perverse.
19. In this view of the matter, it is not necessary to deal with the findings
of the learned arbitrator upholding the Respondent’s contention regarding
the other breaches of the dealership agreement. Even if the other reasons
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cannot be sustained, the above findings were sufficient to hold that the
Respondent was justified in rejecting the Petitioner’s claims.
20. This brings me to the challenge to the award insofar as the arbitrator
has directed the Petitioner to pay various amounts to the Respondent. The
arbitrator has directed the claimant to pay a sum of Rs.10,39,474.68 towards
penalties levied against the Petitioner from the date they were due; a sum of
Rs.34,700/- towards stock verification; a sum of Rs.5,35,191.69 towards
debit balance in legacy account; a sum of Rs.1,27,669.54 towards debit
balance in the ERP account and a sum of Rs.1,07,298/- towards non paid
show room and godown licene fee. The above amounts have been directed
to be paid with interest from the dates they were due. There is a high degree
of possibility that amounts may be due for payment by the Petitioner to the
Respondent in view of the fact that the Petitioner had committed several
breaches of the agreement and the termination of the agreement by the
Respondent is held to be valid. However, the entire award deals only with
the submissions of the Petitioner in support of her claims. The award
contains sufficient and, if I may add with respect, cogent reasons for
rejecting the Petitioner’s contentions and claims. Unfortunately, there are no
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reasons whatsoever for allowing the Respondent’s claims/counter claims.
There is nothing to indicate how the amounts have been computed. I
repeatedly asked Mr. Bhalwal to indicate whether any reasons could be
deciphered from the award, either expressly or even by implication in
support of the arbitrator having awarded the amounts in favour of the
Respondent. I granted time to consider this aspect.
21. Mr. Bhalwal conceded that there were no reasons whatsoever in
support of the amounts granted by the arbitrator in favour of the Respondent.
He, however, submitted that even if an award contains no reasons, it cannot
be set aside. In this regard, he relied upon a judgment of the Supreme Court
in Paradip Port Trust & ors. v. Unique Builders, etc., AIR 2001 SC 846.
The judgment does not support the contention. The award in that matter did
not contain any reasons and was a non speaking one. However, that matter
was governed by the Arbitration Act, 1940 and not by the Arbitration and
Conciliation Act, 1996. Under the 1996 Act, reasons are mandatory. In the
circumstances, the petition succeeds only partly to the extent of the arbitrator
having directed the Petitioner to pay the various amounts to the Respondent.
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22. However, in view of the fact that the award is set aside to the extent
mentioned above only on the ground that it does not contain reasons, it
would be open to the Respondent to adopt appropriate proceedings in
respect thereof, including seeking a fresh reference for the same.
23. With the above clarification/liberty reserved to the Respondent, the
petition is disposed of by the following order :
ORDER:
The award is upheld to the extent that it rejects the
Petitioner’s claims. The award is set aside only to the extent
that it grants some of the Respondent’s claims. There is no
challenge by the Respondent to the award insofar as it awards
certain amounts to the Petitioner. That part of the award is also,
therefore, upheld. There shall be no order as to costs.
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