IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 25-2-2010 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE T.MATHIVANAN O.S.A.No.57 of 2010 and M.P.No.1 of 2010 Executive Director Indian Oil Corporation Ltd., Marketing Division, Southern Region Indian Oil Bhavan No.139, Nungambakkam High Road Chennai 600 034. .. Appellant/Applicant vs M/s.Sudha Moulee Indan Gas Service By its Proprietor M.Latchumanan Having Office at Sudha Theatre Complex T.V. Malai Road Thirukkanur 605 501. .. Respondent/Respondent Original side appeal preferred under Order 36 Rule 1 of O.S. Rules read with Clause 15 of Letters Patent against the order of this Court dated 28.8.2009 made in O.A.No.689 of 2009. For Appellant : Mr.R.Ravi For Respondent : Mr.V.T.Gopalan Senior Counsel for Mrs.Radha Gopalan JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) This intracourt appeal challenges an order of the learned Single Judge of this Court granting an interlocutory injunction for a limited period under Sec.9 of the Arbitration and Conciliation Act, 1996, in favour of the respondent. 2.The Court heard the learned Counsel for the appellant and also the learned Senior Counsel for the respondent and looked into all the materials available including the order under challenge. 3.Admittedly, the respondent/applicant was granted agency distributorship to deal in selling of Indane LPG cylinders. A memorandum of agreement was entered into between the parties on https://hcservices.ecourts.gov.in/hcservices/ 30.6.2000. During the currency of the said agreement, the appellant issued a show cause notice dated 23.6.2009, pointing out the irregularities, discrepancies and deficiencies as breach of the conditions of the agreement, and also called upon the respondent to show cause why not the distributorship originally granted as per the agreement, should not be terminated. The respondent placed the explanation on 30.6.2009, which was found to be not satisfactory by the appellant corporation. Under such circumstances, invoking Sec.9 of the Arbitration and Conciliation Act, 1996, the respondent filed the instant application seeking for an interim injunction to restrain the appellant/respondent corporation from proceeding further with the show cause notice dated 23.6.2009, pending appointment of arbitrator. The said application was strongly opposed by the corporation. The learned Single Judge has taken a view that an interlocutory injunction has got to be granted and made the following order. "In view of the aforesaid discussions, this application stands disposed of by granting an order of injunction against the respondent from proceeding with the show cause notice issued by the respondent dated 23.6.2009, for a period of eight weeks making it clear that within the said period if the applicant does not get necessary relief, the order of injunction shall automatically stand vacated on the lapse of the period stipulated herein." 4.Aggrieved over the said order, the appellant/corporation has brought forth this appeal. 5.Advancing arguments on behalf of the appellant/corporation, the learned Counsel Mr.R.Ravi would submit that it is pertinent to note that the respondent has categorically opposed the arbitration clause in part as to the appointment of designated arbitrator as per arbitration clause, but agrees with regard to the other portions of arbitration clause which is impermissible in law as laid down by the Apex Court; that in the case on hand, it is only issuance of show cause notice for breach of terms and not the question of delayed supply and assessment of damages; that the parameters to be considered by the Court in a given case like this are (a) manifest intention of party to go for arbitration; (b) existence of a live dispute; and (c) party should accept that there is a final and binding arbitration agreement in existence; that the respondent has clearly spelt out in his notice that he does not agree to the arbitration clause, and for such person no terms can be set in; that the direction given by the learned Single Judge that the respondent should take steps for appointment of arbitrator is a non-workable one; that there is no dispute between the parties, much less an arbitral dispute, and under the circumstances, the order of the learned Single Judge has got to be set aside. 6.In support of his contentions the learned Counsel relied on the following decisions. (i) (1999) 2 SCC 479 (SUNDARAM FINANCE LTD. V. NEPC INDIA LTD.) https://hcservices.ecourts.gov.in/hcservices/ (ii) 2004(2) CTC 208 (FIRM ASHOK TRADERS AND ANOTHER V. GURUMUKH DAS SALUJA AND OTHERS) (iii) (2006) 6 SCC 25 (CRAWFORD BAYLEY & CO. AND OTHERS V. UNION OF INDIA AND OTHERS) (iv) (2006) 6 SCC 204 (YASHWITH CONSTRUCTIONS (P) LTD. V. SIMPLEX CONCRETE PILES INDIA LTD. AND ANOTHER). 7.Countering the above contentions, the learned Senior Counsel Mr.V.T.Gopalan on behalf of the respondent put forth his submissions in his sincere attempt of sustaining the order of the learned Single Judge. 8.This Court paid its anxious consideration on the submissions made. 9.It is not in controversy that the appellant corporation and the respondent dealer entered into a dealership agreement dated 30.6.2000, and the said memorandum of agreement continues to be in force. While the matter stood thus, the appellant has issued a show cause notice dated 23.6.2009, wherein it was stated that the respondent has committed serious violations of the distributorship agreement as referred to above, read with the Marketing Discipline Guidelines 2001, and the show cause notice was issued under Clause 27 calling upon the respondent to put forth his explanation. It is not in controversy that the explanation was tendered by the respondent, and it was also not found satisfactory by the Corporation. It would be more apt and appropriate to reproduce the Clause relating to arbitration as found in the agreement. "37(a) All questions, disputes and differences arising under or in relation to this Agreement shall be referred to the sole arbitration of the Director (Marketing) of the Corporation. If such Director (Marketing) is unable or unwilling to act as the sole arbitrator, the matter shall be referred to the sole arbitration or some other officer of the Corporation by such Director (Marketing) in his place, who is willing to act as such sole arbitrator. It is known to the parties herein that the Arbitrator appointed hereunder is an employee of the Corporation and may be Shareholder of the Corporation. The arbitrator to whom the matter is originally referred, whether the Director (Marketing) or Officer, as the case may be, on his being transferred or vacating his office or being unable to act, for any reason, the Director (Marketing) shall designate any other person to act as arbitrator in accordance with the terms of the Agreement and such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also the term of this Agreement that no person other than the Director (Marketing) or the person designated by the Director (Marketing) as aforesaid shall act as arbitrator. The award of the Arbitrator so appointed shall be final, conclusive and binding on all the parties to the Agreement https://hcservices.ecourts.gov.in/hcservices/ and provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the Rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause." 10.Under Clause 27 of the agreement, either of the party without assigning any reason, can terminate the agreement by giving 30 days notice. But, in the instant case, Clause 27 was not invoked by either of the parties. The instant application was filed under Sec.9 of the Act for an interim injunction not to proceed with the impugned show cause notice dated 23.6.2009. From the submissions made by the learned Counsel for the appellant Corporation, it could be seen that the respondent has filed the application under Sec.9 of the Arbitration and Conciliation Act 1996, while there was no dispute between the parties to invoke the arbitral clause, and apart from that, from the explanation tendered by the respondent, it would be quite clear that he himself has questioned the appointment of an Arbitrator which would clearly indicate the manifest intention of the respondent not to go for arbitration. It was also urged that it was only at the stage of show cause notice, and hence a duty is cast upon the respondent to send a reply therefor and await the decision, and if aggrieved, he has to seek the necessary remedy thereafter, and now filing an application for interlocutory injunction was premature, and hence it should be denied, and thus the learned Single Judge has taken an erroneous view in granting the injunction for a limited period. 11.At this juncture, it is pertinent to point out that the learned Single Judge has granted interim injunction for a period of 8 weeks from 28.8.2009. It was also made clear in that order that if the respondent does not get necessary relief, the injunction so granted, would stand vacated. Thus, it would be quite clear that as on today, there is no injunction order in force. Now, the learned Senior Counsel for the respondent brought to the notice of the Court that an application under Sec.11 of the Arbitration and Conciliation Act has already been filed and it is also pending. 12.The contention put forth by the learned Counsel for the appellant is that even without any dispute between the parties to invoke the arbitral clause, application like this cannot be filed, and hence the contentions now put forth by the respondent could well be placed at the time of consideration of the application of the respondent distributor. As far as the contention put forth by the learned Counsel that there was no existence of any dispute between the parties since it is at the stage of show cause notice was concerned, the same cannot be countenanced since even as per the appellant's case, the irregularities committed by the respondent were serious in nature as enumerated in the show cause notice. The respondent is questioning the contents and charges levelled against him. Under such circumstances, there exists a dispute which would fall within the arbitral clause as found in Clause 37 of the agreement as referred to above. 13.Insofar as the other contention that the officials of the respondent if appointed to decide the dispute, there would be a https://hcservices.ecourts.gov.in/hcservices/ biased attitude, and hence the corporation should not be allowed to appoint its own officer to be an arbitrator, it is now brought to the notice of the Court that an application under Sec.11 of the Act has already been filed, and hence such contention does not require consideration in this appeal. 14.The Apex Court has held in a decision reported in (1987) 2 SCC 160 (STATE OF KARNATAKA V. SHREE RAMESHWARA RICE MILLS, THIRTHAHALLI) as follows: "7. On a consideration of the matter we find ourselves unable to accept the contentions of Mr Iyenger. The terms of clause 12 do not afford scope for a liberal construction being made regarding the powers of the Deputy Commissioner to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. The crucial words in clause 12 are “and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party”. On a plain reading of the words it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If is was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording of clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is a subsidiary and consequential power and not the primary power. Even assuming for argument’s sake that the terms of clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the officer party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case the officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of clause 12. 8. We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions and recovery https://hcservices.ecourts.gov.in/hcservices/ of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed." 15.In the decision reported in (2009) 2 SCC 337 (BHARAT SANCHAR NIGAM LIMITED AND ANOTHER V. MOTOROLA INDIA PRIVATE LIMITED), the Apex Court has held thus: "27. The abovestated position can be ascertained through the judgment of this Court in State of Karnataka v. Shree Rameshwara Rice Mills (1987) 2 SCC 160. This Court in the said case, made a clear distinction between adjudicating upon an issue relating to a breach of condition of contract and the right to assess damages arising from a breach of condition. It was held that the right conferred to assess damages arising from a breach of condition does not include a right to adjudicate upon a dispute relating to the very breach of conditions and that the power to assess damages is a subsidiary and consequential power and not the primary power. 28. Clause 20.1 regarding excepted matters reads: “In the event of any question, dispute or difference arising under this agreement or in connection therewith (except as to the matters, the decision to which is specifically provided under this agreement), …” Therefore, it is clear from this provision, matters which will not fall within the arbitration clause are questions, disputes or differences, the decision to which is specifically provided under the agreement. Clause 16.2 is not a clause wherein any decision-making power is specifically provided for with regard to any question, dispute or difference between the parties relating to the existence of breach or the very lack of liability for damages i.e. the levy of liquidated damages." 16.From the above decisions, it would be quite clear that the Supreme Court has well adumbrated the legal maxim nemo debet esse judex in propria causa sua i.e., no man can be a judge in his own cause. As rightly pointed out by the respondent, if an official of the appellant is appointed to take a decision, it will be nothing but allowing to judge a matter of the corporation by its own officials. However, as stated above, an application under Sec.11 of the act has already been filed by the respondent, and it is also pending in Court. 17.In the instant case, what is to be considered at this stage is whether interim measure by way of granting interlocutory injunction has to be granted in favour of the respondent till a decision is taken in the arbitral proceedings. This Court is of the considered opinion that once the show cause notice has been issued, and the reply received from the respondent was also found not satisfactory, then the next step that would be taken by the appellant https://hcservices.ecourts.gov.in/hcservices/ corporation was termination of the agreements. Under such circumstances, the contention put forth by the appellant's side that the respondent has to await the decision of the corporation and get the proper remedy thereafter would be nothing but dragging the parties to wait, suffer an injury and thereafter go to Court. Once all the contents of the show cause notice as to the irregularities which, according to the appellant, are serious in nature, are disputed, it has to be decided by the arbitral proceedings. Hence this Court is of the opinion that the learned Single Judge was perfectly correct in granting interlocutory injunction for a limited period. This Court is unable to see any merit in this appeal. 18.In the result, this original side appeal fails, and the same is dismissed confirming the order of the learned Single Judge. The parties are directed to bear their costs. Consequently, connected MP is also dismissed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar nsv/ To The Sub.Assistant Registrar Original Side, High Court, Madras. 1 cc To Mr.R.Ravi, Advocate, SR.13353 1 cc To M/s.Radha Gopalan, Advocate, SR.13012 OSA No.57 of 2010 bv(co) pmk.11.3.2010 https://hcservices.ecourts.gov.in/hcservices/