FAO No.2551 of 2008 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.2551 of 2008 (O&M) Date of decision: 15.9.2010 M/s Indian Oil Corporation Limited ........ Appellant Versus Manmohan Krishan and another ........ Respondents CORAM: HON'BLE MR.JUSTICE JORA SINGH Present: Mr. Ashish Kapoor, Advocate for the appellant. Mr.R.Kartikeya, Advocate for the respondent. JORA SINGH, J. Challenge in the present appeal is to the order dated 25.7.2008, passed by the learned Additional District Judge, Moga, while disposing of petition under Section 9 of the Arbitration and Conciliation Act (hereinafter referred as 'the Act'), moved by Manmohan Krishan and Madhav Rao Krishan, partners of Jai Ambe Filling Station, Moga- Amritsar Road, Landeke, District Moga. By the said judgment, petition under Section 9 of the Act was accepted restraining the appellants herein, from implementing the vires of the show-cause notice dated 28.10.2007 and termination letter dated 18.12.2007, before the result of arbitration proceedings. M/s Jai Ambe Filling Station, Moga-Amirtsar Road, Landeke, District Moga, through its partners filed this petition under FAO No.2551 of 2008 (O&M) -2- Section 9 of the Act, on the allegation that Indian Oil Corporation (hereinafter referred as 'the Corporation') allotted dealership/licence to the dealer to operate retail outlet on commission basis on behalf of the Corporation. Written agreement dated 31.12.2004, was executed amongst the parties. That the retail outlet of the dealer was inspected by an independent agency i.e. M/s S.G.S. India Private Limited, duly appointed by the Government of India on 27.10.2007, which took the marker sample of products and same were found adulterated. Show cause notice dated 28.10.2007, was issued to the dealer by the Corporation for cancellation of dealership/licence due to failure of the test and supply was stopped. On receipt of show cause notice dated 28.10.2007, the dealer challenged its validity and legality by way of filing suit for declaration in the Civil Court on 8.11.2007. The Corporation appeared and filed an application under Section 8 of the Act, for stay of the proceedings of the suit on the ground that there was an arbitration clause in the written agreement. In view of the application proceedings of the suit were stayed by the Civil Court and the matter was referred to the Arbitrator. Before appointment of the Arbitrator, the Corporation terminated the dealership/licence of the dealer vide letter dated 18.12.2007. After issuance of letter of termination before appointment or Arbitrator by the Corporation, dealer filed petition under Section 9 of the Act for staying the operation of show cause notice dated 28.10.2007 and termination of dealership/licence vide letter dated 18.12.2007, till the decision by the Arbitrator with request for interim relief restraining the Corporation from stopping the sale/supply of the oil. Reply of the Corporation, was that show-cause notice dated 28.10.2007, was rightly issued because the test of products taken by the independent agency i.e. M/s SGS India Private Limited, failed. In view of the report dealership/licence was cancelled. After issuance of show FAO No.2551 of 2008 (O&M) -3- cause notice, civil suit was filed by concealing the true facts. No reply to the show-cause notice and directly civil suit was instituted. Dealer did not take any step for reference of the matter to the Arbitrator. Dealer has no right to remain in possessions of the premises of the aforesaid outlet because his licence has already been cancelled. Dealer is owner of only moveable property i.e. Furniture and other items which can be removed by the dealer very easily. After perusal of evidence/documents on the file and hearing the learned counsel for the parties petition under Section 9 of the Act was accepted vide the impugned order which is under challenge. I have learned counsel for the parties and have carefully gone through the evidence on file. Learned counsel for the appellant argued that agreement dated 31.12.2004, was executed amongst the parties. Vide this agreement dealership/licence was issued to the respondents to operate retail outlet on commission basis on behalf of the appellant-Corporation. Agreement was for 5 years. On 27.10.2007 there was a checking by M/s SGS India Private Limited, duly appointed by the Government of India which took the marker sample of products but the sample was found adulterated. Show cause notice dated 28.10.2007, was issued to the respondents. Civil Suit for declaration was instituted by the respondents. Application under Section 8 of the Act was filed by the appellant to stay the proceedings of the suit on the ground that there was an arbitration clause in the written agreement. In view of the application proceedings were stayed and the matter was referred to Arbitrator. On request of the respondents again there was a checking on 31.10.2007 but again sample was found to be adulterated. Arbitrator has given award dated 8.9.2010 against the respondents. Trial Court had allowed the petition under Section 9 of the Act and set aside the FAO No.2551 of 2008 (O&M) -4- show cause notice dated 28.10.2007 and termination letter dated 18.12.2007 in view of the decision in writ petition No.29561 of 2007, titled as M/s D. Nagarajan @ Co. Vs. The Chief regional Manager and duly constituted Attorney, Hindustan Petroleum Corporation Limited, Chennai. Above said authority was over-ruled. By way of interim relief the Court has granted the main relief. Reliance was placed on: 1) 1991 (1) SCC 533 “Indian Oil Corporation Ltd. Versus Amritsar Gas Service and others. 2) 2000 (7) SCC 764 “E. Venkatakrishna Vs. Indian Oil Corporation and another. 3) FAO No. 3815 of 2009 decided on 18.8.2009 “M/s Indian Oil Corporation Limited Vs. M/s Rajpura Gas House and another. 4) AIR 1952 SC 12 “The State of Orrisa Vs. Madan Gopal Rungta”. 5) 2006 (4) SCC 227 “Percept D'Markr (India) Pvt. Ltc. Vs. Zaheer Khan and another”. 6) AIR 2002 SC 2598 “Hindustan Petroleum Corporation Limited Vs. Sri Sriman Narayan and another.” 7) MANU/TN/1203/2008 “The Chief Regional Manager and duly Constituted Attorney, Hindustan Petroleum Corporation Ltd. and S.K. Shenbagamoorthy and Brothers represented by its Managing Parter, Mr. K. Ramchandran Vs. D. Nagarajan and Co. 8) 2003 (3) PLR 746 “Hindustan Petroleum FAO No.2551 of 2008 (O&M) -5- Coporation Ltd. Vs. M/s Pinkcity Midway Petroleums”. Learned counsel for the respondents argued that no doubt agreement dated 31.12.2004, was executed amongst the parties but checking was not by the authorized representative of the Corporation. Complaint was instituted against M/s SGS India Private Limited. Despite complaint against the above said authority again there was a checking on 31.10.2007. Clear-cut alteration in the checking report. Impugned order was rightly passed restraining the appellant from implementing the vires of the show-cause notice dated 28.10.2007 and termination letter dated 18.12.2007, before the result of arbitration proceedings. Admitted position that agreement dated 31.12.2004 was executed amongst the parties and vide this agreement respondents were allotted dealership/licence to operate retail outlet on commission basis on behalf of the Corporation and the agreement was for 5 years. On 27.10.2007, there was a checking of the retail outlet of the dealer by M/s SGS India Private Limited. The above said firm had collected the marker sample of products but the sample was found adulterated. Show cause notice dated 28.10.2007, was issued to the dealer by the Corporation. After show cause notice, Civil Suit for declaration was instituted on 8.11.2007. Application under Section 8 of the Act was moved by the appellant to stay the proceedings of the suit. Application was accepted and the proceedings were stayed and the matter was referred to arbitration. After the matter was referred to the Arbitrator, then petition under Section 9 of the Act was moved by the respondents. On request of the respondents again there was a checking of the retail outlet of the dealer on 31.10.2007 but again the sample was FAO No.2551 of 2008 (O&M) -6- found to be adulterated. After the issuance of show-cause notice, termination of dealership/licence was issued vide letter dated 18.12.2007, till the conclusion of the arbitration proceedings. Mr. D.S. Sharma, was the sole Arbitrator. After going through the evidence on the file and hearing the counsel for the parties Award dated 8.9.2010, was passed on the allegation the checking was by the duly authorized company of the Corporation. Dealer had been indulging in serious mal-practices of adulteration and violated the terms and conditions of the dealership agreement. In 1991 (1) SCC 533 “Indian Oil Corporation Ltd. Versus Amritsar Gas Service and others” in para No.12 Hon'ble Supreme Court has observed as under: “12. The arbitrator recorded finding on Issue No.1 that termination of distributorship by the appellant- Corporation was not validly made under clause 27. Thereafter, he proceeded to record the finding on Issue No.2 relating to grant of relief and held that the plaintiff-respondent 1 was entitled to compensation flowing from the breach of contract till the breach was remedied by restoration of distributorship. Restoration of distributorship was granted in view of the peculiar facts of the case on the basis of which it was treated to be an exceptional case for the reasons given. The reasons given state that the Distributorship Agreement was for an indefiinte period till terminated in accordance with the terms of the agreement and, therefore, the plaintiff-respondent 1 was entitled to continuance of the distributorship till it was terminated in accordance with the agreed terms. FAO No.2551 of 2008 (O&M) -7- The award further says as under: “This award will, however, not fetter the right of the defendant Corporation to terminate the distributorship of the plaintiff in accordance with the terms of agreement dated April 1, 1976, if and when an occasion arises.” 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 agreement dated April1, 1976, which contains 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. 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 were automatically attracted. Sub-section (1) of Section 14 of the Specific Relief Act specifies the contracts which cannot be specifically enforced, out 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 reasons given in the award itself that the contract by its nature is determinable. This being so granting the relief of restoration of the FAO No.2551 of 2008 (O&M) -8- 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 relief in the award cannot, therefor, be sustained.” In 2000 (7) SCC 764 “E. Venkatakrishna Vs. Indian Oil Corporation and another” the Hon'ble Supreme Court held that all that the Arbitrator could do, if he found that the termination of the distributorship was unlawful, was to award damages, as any civil court would have done in a suit. In FAO No. 3815 of 2009 decided on 18.8.2009 “M/s Indian Oil Corporation Limited Vs. M/s Rajpura Gas House and another” there was a contract of gas agency for distribution of LPG cylinders with the Indian Oil Corporation. Contract was terminated. Question was whether an agent complaining of unlawful termination could seek for its specific enforcement or the remedy would lie merely in damages. Ultimately, held that the relief claimed by the gas agency before the Arbitrator for restoration of the agency was, therefore, not maintainable. Award of the arbitrator was restored. Order of the District Judge was set aside. In AIR 1952 SC 12 “The State of Orissa Vs. Madan Gopal Rungta” Hon'ble Supreme Court held that writ petition under Article 226 of the Constitution of India is allowed by the High Court on the ground that no alternative remedy was available till expiry of sixty days notice as required under Section 80 CPC. High Court passed interim orders as it felt that respondent would undergo immediate loss of possession if they waited for time as prescribed under Section 80 CPC. FAO No.2551 of 2008 (O&M) -9- Question was whether the directions in nature of interim relief can be granted under Article 226. Opined that Article 226 cannot be used for giving interim reliefs. Interim reliefs can be granted only in aid of and as ancillary to main relief which may be available to party on final determination of rights in suit. In 2006 (4) SCC 227 “Percept D'Markr (India) Pvt. Ltd. Vs. Zaheer Khan and another” there was a contract of employment. Clause in agreement that if the player wants to make agreement with third party, terms thereof would be first offered to the agency. Term of the said agreement was for a period of three years. Then it cannot be enforced after expiry of period of agreement. Relevant Para 65 is reproduced as under: “65. Assuming without admitting that the negative covenant in Clause 31 (b) is not void and is enforceable, it was nevertheless inappropriate, if not impermissible, for the Single Judge to grant an injunction to enforce it at the interim stage, for the following reasons: (i) Firstly, grant of this injunction resulted in compelling specific performance of a contract of personal, confidential and fiduciary service, which is barred by Clauses (b) and (d) of Section 14 (1) of the Specific Relief Act, 1963; (ii) Secondly, it is not only barred by Clause (a) of Section 14 (1) of the Specific Relief Act, but this Court has consistently held that there shall be no specific performance of contracts for personal services; (iii) Thirdly, this amounted to granting the FAO No.2551 of 2008 (O&M) -10- whole or entire relief which may be claimed at the conclusion of trial, which is impermissible. (Bank of Maharashtra v. Race Shipping, (1995) 3 SCC 257 (Paras 10-12). (iv) Fourthly, the Single Judge's Court completely overlooked the principles of balance of convenience and irreparable injury. Whereas Percept (appellant) could be fully compensated in monetary terms if they finally succeeded at trial, respondent No.1 could never be compensated for being forced to enter into a contract with a party he did not desire to deal with, if the trial results in rejection of Percept's claim. (Hindustan Petroleum v. Sriman Narayan, (2002)5 SCC 760. (v) The principles which govern injunctive reliefs in such cases of contracts of a personal or fiduciary nature, such as management and agency contracts for sportsmen or performing artistes, are excellently summarized in a Judgment of the Chancery Division report in Page Once Records v. Britton, (1968) 1 W.L.R. 157. In this case it was held that, although the appellant had established a prima facie case of breach of contract entitling them to damages, it did not follow that entire of them was entitled to the injunction sought; that the totality of the obligations between the parties gave rise to the fiduciary relationship and the FAO No.2551 of 2008 (O&M) -11- injunction would not be granted, first because the performance of the duties imposed on the appellant could not be enforced at the instance of the defendants and, second, because enforcements of the negative covenants would be tantamount to ordering specific performance of this contract of personal services by the appellant on pain of the group remaining idle and it would be wrong to put pressure on the defendants to continue to employ in the fiduciary capacity of a manager and agent someone in whom he had lost confidence.” In AIR 2002 SC 2598 “Hindustan Petroleum Corporation Limited Vs. Sri Sriman Narayan and another” dealership agreement for running petrol pump between appellant corporation and respondent. Question whether, if the respondent No.1 had violated the condition stipulated in the agreement by changing the structure of the firm without taking prior permission from the appellant, still the latter was bound to give to the former an opportunity for rectifying the detect and whether passing the order revoking the agreement without affording such opportunity will render the revocation order invalid, are matters which are to be considered when the suit taken up for hearing. These are not matters to be considered in detail for considering the prayer for interlocutory order of injunction. High Court has not considered the question whether on the facts and circumstance of the case, if the payer for interim injunction is refused the plaintiff/petitioner will suffer irreparable loss which cannot be adequately compensated by damages. In the present case there was a checking on 27.10.2007. Sample was found to be adulterated. Again on the request of the FAO No.2551 of 2008 (O&M) -12- respondents there was a checking on 31.10.2007 but again sample was found to be adulterated. In case respondents are directed to carry on business then possibility of sale of adulterated items cannot be ruled out, particularly when termination order dated 18.12.2007, was passed and sale/supply was stopped. Premises belongs to the Corporation only movable articles are belong to the respondents. In MANU/TN/1203/2008 “The Chief Regional Manager and duly Constituted Attorney, Hindustan Petroleum Corporation Ltd. and S.K. Shenbagamoorthy and Brothers represented by its Managing Parter, Mr. K. Ramchandran Vs. D. Nagarajan and Co. relevant paras No.19 and 20 are reproduced as under: “19. As we hold that the learned single Judge has wrongly come to the conclusion that the show cause notice was issued after pre-determination by the Hindustan Petroleum Company, the other submission as was made by the learned Senior Counsel appearing for the petroleum dealers relating to the engagement of outside agency, is rejected. 20. We set aside the impugned order dated 29.2.2008 passed by the learned single Judge in Writ Petition No.29561 of 2007, thereby, allow Writ Appeal No. 391 of 2008 filed by the Hindustan Petroleum Company and dismiss Writ Petition (MD) No. 6167 of 2008 filed by the petroleum dealer. In 2003 (3) PLR 746 “Hindustan Petroleum Coporation Ltd. Vs. M/s Pinkcity Midway Petroleums” decided on 21.11.2008 in para No.21 Hon'ble Supreme Court observed as under: 1. “21. A perusal of this Clause shows that if the dealer commits a default in complying with the FAO No.2551 of 2008 (O&M) -13- obligations enumerated in Clause 20 of the Agreement, the appellant is entitled to stop or suspend supply of its petroleum products to such a dealer without prejudice to other remedies available under the agreement. This right of the appellant to take action against an erring dealer under the terms of the Agreement is de hors the proceedings that may be available to be initiated against an erring dealer under the provisions of various other enactments referred to in Clause 20 of the said Agreement including under the provisions of the 1985 Act. This right of the Corporation to suspend the supply of petroleum products to an erring dealer is a right exercised under the terms of the contract and is independent of the statutory provisions of the various Acts enumerated in Clause 20 of the Agreement. The courts below, in our opinion, have committed an error by misreading the terms of the contract when they came to the conclusion that the only remedy available as against a misconduct committed by an erring dealer in this regard to short-supply and tampering with the seals lies under the provisions of the 1985 Act. The courts below have failed to notice that when a dealer short-supplies or tampers with the seal, apart from the statutory violation, he also commits a misconduct under Clause 20 of the Agreement in regard to which the appellant is entitled to invoke Clause 30 of the Agreement to FAO No.2551 of 2008 (O&M) -14- stop supply petroleum products to such dealer. The power conferred under the Agreement does not in any manner conflict with the statutory power under the 1985 Act nor does the prescribed procedure under the 1985 Act in regard to search and seizure and prosecution apply to the power of the appellant to suspend the supply of its petroleum products to an erring dealer. The power exercised by the appellant in such a situation is a contractual power under the agreement and not a statutory one under the 1985 Act. The existence of dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in the Indian jurisprudence.” Learned counsel for the respondents cited 2010 STPL (Web) 136 SC “M/s Hindustan Petroleum Corporation Ltd. and others Vs. M/s Super Highway Services and another and relevant para No.17 of the judgment is reproduced as under:- “17. The cancellation of dealership agreement of a party is a serious business and cannot be taken lightly. In order to justify the action taken to terminate such an agreement, the concerned authority has to act fairly and in complete adherence to the rules/guidelines framed for the said purpose. The non-service of notice to the aggrieved person before termination of his dealership agreement also offends the well-established principle that no person should be condemned unheard. It was the duty of the petitioner to ensure that the Respondent No.1 was FAO No.2551 of 2008 (O&M) -15- given a hearing or at least serious attempts were made to serve him with notice of the proceedings before terminating his agreement.” 1999 (3) PLR 685 “M/s Sundram Finance Ltd. Vs. M/s NEPC Indian Ltd.” was cited by the learned counsel for the respondents wherein it was held that existence of arbitration agreement and dispute, when a party applies for interim relief to the Court under Section 9 of 1996 Arbitration Act, it is implicit that it accepts that there is a final and binding arbitration agreement. The material words “before or during the arbitral proceedings” clearly contemplate that the court has the power and jurisdiction to grant interim injunction to preserve and protect the subject property of the dispute or any other direction envisaged in Section 9 even before start of arbitral proceedings. Pendency of proceedings before Arbitral Tribunal is not the condition precedent. But this authority is not helpful to the respondents because while filing the main petition request under Section 9 of the Act was that till the decision of the Arbitrator, show cause notice dated 28.10.2007 and termination order dated 18.12.2007, be not implemented but now the arbitrator has given Award dated 8.9.2010. But in the present case, agreement was for 5 years. After the expiry of 5 years agreement can be cancelled after issuing notice of three months. In the present case agreement was cancelled. Matter was referred to Arbitrator and there is an Award of the Arbitrator against the respondents. Main allegation of the respondents by filing petition under Section 9 of the Act was that till the decision of the Arbitrator, show cause notice dated 28.10.2007 and the termination order dated 18.12.2007, be not implemented. So after Award dated 8.9.2010, no ground to allow the respondents to carry on business. FAO No.2551 of 2008 (O&M) -16- In the light of above discussion, impugned order suffers from infirmity and illegality and the same is ordered to be set aside. Appeal accepted. September 15, 2010 ( JORA SINGH ) rishu JUDGE