1 IN THE HIGH COURT OF BOMBAY AT GOA APPEAL UNDER ARBITRATION ACT NO.1 OF 2011. M/s. Lotlikar House of Petroleum. ...... Appellant. V/s. Hindustan Petroleum Corporation Limited and another. ...... Respondents. Mr. M. S. Sonak and Mr. N. Noronha, Advocates for the appellant. Mr. A. F. Diniz, Advocate for the respondents. CORAM :- S.C. DHARMADHIKARI, J. Date :- 25th March, 2011. P.C. :- This Appeal under Section 37(1) of the Arbitration and Conciliation Act, 1996 is directed against the order passed by the Principal District Judge, North Goa, Panaji on an application under Section 9 of the said Act, made by the Appellants before me. 2. By the order under challenge, delivered on 24.1.2011, the learned Principal District Judge, Panaji dismissed the application for interim measures. 2 3. The interim measures that were sought by the appellants, included continuation of the supplies to them, so as to enable them to act as dealers of the respondent Petroleum Corporation. 4. Very briefly the facts are that at Ponda, on a land under survey No.31/1 admeasuring 1775 sq. metres, a service station was started for repairing of the punctures of vehicles, and repairs of vehicles. Thereafter ESSO, a Petroleum Company started a petrol pump and it was being run, maintained and possessed by the original applicant No.2. Respondent No.1 took over rights of ESSO Company and the petrol pump was renamed as Hindustan Petroleum (hereafter, referred to as “the Corporation”). It is not necessary to go into other aspects, save and except, that it was the case of the original applicant No.2 that he was critically ill sometime in 2002 and underwent bypass surgery at Bombay. The Corporation accommodated him and assured him that he would continue as a dealer. An agreement dated 15.3.2002 was entered into and it was stated that the dealership was to valid for 15 years from 15.3.2002. It is the case of the applicants that apart from the surgery of original applicant No.2, he was mentally 3 depressed after demise of his wife and the work at the petrol pump, therefore, could not be supervised by him. An inspection was taken of the petrol pump on 15.6.2010 by the Officers of the Corporation. They noted some details which were reflected in the inspection report. The Officers came back to the petrol pump and made another report dated 17.6.2010. Original applicant No.2, therefore, wrote a letter dated 21.6.2010 to the Corporation explaining the difficulties, but there was no response. Suddenly, a show cause notice dated 9.8.2010, seeking to take action in terms of the Agreement was issued and a detailed explanation was given by reply dated 14.8.2010. It was stated that all steps would be taken to ensure the recording of the stocks. There was also a meeting with the Officers and it was stated that on account of ill-health of the original applicant No.2 there were some lapses, but such acts would not be repeated in future. 5. The allegation is that one Bala Atmaram Sahakari is running a petrol pump under the name and style “M/s. Sahakari Petroleum” at Curti Ponda about 6 kms. away from the said petrol pump. It was reliably learnt that said Sahakari was enjoying excellent relationship with the Officers of the Corporation and there were certain 4 rumours spread so as to take care of the competition between the dealers. It is in such circumstances that this show cause notice came to be issued and the act of the Authorities in doing so has caused irreparable harm and injury which cannot be compensated in terms of money. 6. It is on such allegations that the application was made inter alia contending that the termination notice dated 18.10.2010 was never served on the applicants. The same having not been served, the high handed actions of the respondents in taking possession of the outlet would demonstrate that there is a strong facie case and, therefore, interim measure, as claimed be granted. 7. On being served with a copy of the Application, there was a reply and further reply filed by the Corporation, in which the stand taken was that it is not as if the action was sudden and with a view to cause any embarrassment or harassment to the dealer. From 2008 onwards it has been repeatedly pointed out that there are serious lapses and negligence on the part of the dealer. Stocks statement and the verification thereof showed variation to a great extent. There has been 5 absolutely no supervision at site. Reply to show cause notice admits lapses and the acts of negligence . If the Authorities were satisfied that the remedial measures having not been taken, in public interest, the dealership cannot be continued, then, they cannot be faulted for having issued the show cause notice. Even in the reply to the show cause notice, there is no serious denial of the allegations made. In such circumstances, termination order was passed and even the termination notice came to be served, copy thereof has been pasted and the agreement permits service by such modes. In all these circumstances and bearing in mind the larger public interest, no interim measures and, particularly as prayed, be granted. 8. It is this application which was considered and ultimately decided by the learned Principal District Judge by some what lengthy order. Impugning this order in the present appeal, it is contended by Mr. Sonak, learned Counsel appearing on behalf of the appellants that the Court below firstly erred in concluding even at this prima facie stage that there is no binding arbitration agreement. Further, the Court below proceeded on the basis that in all such cases no interim order or injunctive order of the nature sought by the applicant can ever be 6 granted and the remedy of the aggrieved party in law is only to seek damages. He then submits that the Court below erred in holding that even if the case of the appellants that there was no service of termination notice is plausible, yet, they are not entitled to any interim measures. Reliance was placed on some photographs. If the photographs are to be treated as an evidence of pasting of the notice, then in all such cases the Corporation would never serve anything personally on dealers or their authorised officials, but paste something on the outlet, subsequently to show that a panchanama was drawn and the possession was taken without using any force, but by due process of law. Therefore, having demonstrated that there is a prima facie case and the balance of convenience is in favour of the appellants and that they would suffer great hardships, irreparable loss and injury that the injunction should have been granted. 9. Reliance is placed upon a decision of the Hon'ble Supreme Court in the case of Hindustan Petroleum Corporation Limited and others vs. Super Highway Services and another, reported in (2010) 3 SCC 321, which is a matter dealing with the similar act of the very Corporation which is the respondent before this Court. 7 10. On the other hand, Mr. Diniz, learned Counsel appearing on behalf of the respondents, firstly submitted that it is false to suggest that there was no service of the Termination Notice. In fact, the specific plea raised in that behalf in the reply has never been denied or disputed; that the termination notice came to be served is clear from the assertion in the reply wherein even the date and time was mentioned. Inviting my attention to page 391 of the appeal paper book, it is contended that there is vague and evasive denial with regard to the procurement of the medical certificate, but there is no denial of the fact that the termination notice was served. He also invited my attention to the termination notice, wherein there is a reference to the inspection reports of 2006, letters exchanged in 2006, inspection reports of 2008 and a warning letter followed by another inspection report evidencing continuing lapses through out 2009 and ultimately the show cause notice. He submits that there were serious irregularities in operating the retail outlet dealership in terms of the clauses of the dealership agreement. The irregularities mentioned in the termination notice were serious enough to terminate the dealership. My attention is also invited by Mr. Diniz to the reply to the show 8 cause notice, wherein there is an admission that there have been lapses and what the applicant no.2 has stated is that he appeals to the Corporation to condone the same as they were not deliberate. The applicants/appellants did not dispute that there was a shot delivery of the products. However, that was during the absence of applicant No.2 from the outlet. For all these reasons, it is submitted that there is no prima facie case made out and the application for injunction has been rightly rejected. 11. Having heard the Counsel appearing for the parties at some length and perusing with their assistance, some of the materials that were relied upon, I am of the opinion that the conclusion reached by the learned Principal District Judge cannot be said to be erroneous or perverse which requires my interference in appellate jurisdiction. 12. The respondent No.1 is a Public Sector Corporation and is performing an obligation to supply petroleum products, through its outlets across the country. As a Public Sector Corporation, it is duty bound to maintain the purity of standards and quality of their products, so also their services. If the petroleum products are to be supplied by 9 them through such outlets to the citizens of this country and it is a monopoly right given to them, then, when they appoint dealers, they are necessarily required to be vigilant. They have to ensure that there is no discrepancy in the quantity that has been earmarked for supply to a particular dealer. Further, they have to ensure the quality of the products and that if they notice that a particular dealer has committed some lapses and the periodical inspection has revealed the same and if such lapses are brought to the notice of the dealer and no remedial measures are taken, then, the Corporation cannot be faulted for termination of the dealership. 13. In this case, precisely that has happened. From the record, it is apparent that an inspection has been conducted and when there was an inspection conducted way back in 2008, a warning letter was issued in which it was stated that the outlet has been kept dry with alarming irregularities. Inspection reports were relied upon. Explanations were sought from 2006 and from 2006 the appellants have been assuring that they would avoid any dryouts. Dryouts were continuous. There was no improvement in the situation, and when an assurance was given that sales volume of 200 KL MS and 260 KL 10 HSD per month would be achieved and the outlet would be modernized. Nothing of that sort was done and the respondents accuse the appellants of being irresponsible. There was a harassment to customers which was brought to their notice. There is a reference made to the correspondence in the warning letter and to two inspection reports of 2006. It was also brought to the notice that the Generator at the outlet was not functioning for over two years and that was also a lapse. Response of the appellants was that the lapses have no doubt occurred. Firstly, it was sought to be contended that there are many petrol pumps which have come on highway and the people prefer to load the diesel on other pumps. The appellants stated that the major consumption of petrol is of two wheelers and therefore, it was assured that there would be uninterrupted sale. About DG set for back up power, it was stated that it would be purchased. Other lapses were also more or less admitted and the health problems of Shri Sudesh Lotlikar were placed forward. Not being satisfied with this, on 29.6.2010, the Corporation addressed a further letter and in reply thereto at page 352 of the paper book, this is what is stated: “My immediate investigations reveal that negligence 11 to supervise the quantity before decanting and after decanting by the lorry has resulted in this variation, I am in a process to investigate whether any of my staff in connivance with the lorry drivers has deliberately brought this loss to me. I feel that since March 10 till the date of inspection, the lorry drivers have been decanting or supplying lesser quantity to me. Negligence to measure the deep readings could be one of the reason for this variation, where I seemed to have been cheated. It is not possible to get such a shortage unless the lorry drivers deliver me 300 to 400 liters short every time they decanted the lorry. Since the deep reading figures are rounded up, the records must have been shown to be correct. Whereas the actual quantity received seemed to have been short delivered. This has put me into heavy losses and I shall immediately take up strict checking of the quantities and quality in future at the time of receiving the products. You will notice from your records that you have never had a case of such big variation in my stocks ever before. Even your inspection on 06 Feb. 10 shows the quantity within permissible limits, 12 which means that there was no such big variation until February 10. You will also notice that both my MS & HSD pumps are delivering slightly excess. This also could have added to the loss and the stock variation. It was my general practice that either any of my family members or myself would be around at the time of receiving the products. However, some where in the month of March, I had gone into slight depression on account of my lonely life after the demise of my wife. I was not regularly attending the activities of the Pump. My grandson who looked after the pump in my absence also met with an accident making him invalid for almost three & half months. This had aggravated my worries and the administration of the pump got neglected from my family during last four months, I therefore feel that it is during this period either some of my staff or the lorry drivers or both together have taken advantage of the lack of supervision and caused this shortage and heavy loss to me. I therefore appeal to you to kindly accept this as my explanation and condone lapse on my part if any and do not apply marketing disciplinary guidelines to this case. I can assure you that there is no problem with the quality and quantity of the fuel supplied to the 13 customers nor there is any loss to Hindustan Petroleum. Going by my track records of last several years, please be assured that the variation in the stock is not deliberate and seems to be a case of taking advantage of my absence by unscrupulous elements which I am further investigating. I therefore once again appeal to you to kindly start my pump immediately by accepting the above explanation and I assure you that proper supervision will be installed to ensure that such incidents does not get repeated. I await your kind consideration.” 14. It is, thereafter, that on 9.8.2010 the show cause notice was issued and without entering into any controversy, but finding from the record that the show cause notice preceded the termination and receipt of the show cause notice was never in dispute that the larger controversy need not be gone into. It is clear that the termination was not a sudden act. It was on account of the lapses and irregularities noticed over a passage of time. If the Corporation does not find that satisfactory remedial measures are being taken at site, then, it cannot be faulted for having acted in public interest and in the interest of its customers. It had issued repeated warnings and when a show cause 14 notice was issued, there was a reply to the show cause notice on 14.8.2010 in which a ground has been stated to be the reasons for the lapses. Even thereafter, there was no change in the scenario. In such circumstances, assuming that there was no service of termination notice, that, by itself, is not fatal. Once I find that there was enough opportunity given to the appellants to remove the lapses and irregularities and to take adequate measures to ensure smooth supplies to the customers, then, having found that there was no improvement in the situation, the Corporation was prima facie justified in terminating the dealership. 15. Reliance placed on the decision of the Supreme Court in this behalf is entirely misplaced. In that case, the Court noticed that the inspection was carried out behind the back of the dealer; that there was no proper opportunity given to furnish an explanation and the termination was arbitrary, illegal and in violation of the Principles of Natural Justice. Having found all this and in the facts of the case, the findings were recorded and the general principles reiterated. For the purpose of this appeal, it need not be decided whether there was an arbitration agreement or not. In all fairness, Mr. Diniz appearing for 15 the respondents submitted that the Corporation would like this Court to go into the prima facie case placed before the learned Principal District Judge in the application rather than recording any finding on the existence or otherwise of the Arbitration Agreement. In my view, in the light of this submission made by Shri Diniz, the observations made by the Court below with regard to the existence of the arbitration agreement need not influence the decision of the arbitrator or of this Court. The pleas in that behalf can be raised at an appropriate stage in appropriate proceedings. This Court while taking cognizance of the request made to appoint an arbitrator or even otherwise, is not bound by the observations of the Court below. In this behalf, it is clarified that the controversy about there being an arbitration agreement or otherwise, is kept open. 16. As far as merits are concerned, I am not in agreement with Mr. Sonak that the interim relief has been denied only on the ground that in all such cases, remedy of the parties, like the appellants, is only to seek damages, but not status quo ante or injunctive relief. Assuming that such injunctive relief can be granted or status quo ante can be restored, in proceedings of the present nature, the case before me 16 does not require any such relief being granted. Prima facie, I am satisfied from the materials produced that when irregularities and lapses committed are serious and otherwise justify the ultimate act, then this is not a case for interference with the discretion exercised by the Court below. The Court below found that there is no prima facie case on account of the admitted lapses. 17. The criticism of Shri Sonak that there is absolutely no discussion on merits is not accurate. The elaborate order discusses all aspects of the matter and at the prima facie stage the Court finds out whether there is prima facie material for the termination. That there is enough justification is clear from the documents produced by the appellants. That is reason enough to hold that there is no prima facie case made out. Therefore, even on merits, I do not find that this is a fit case for grant of any relief, or to interfere with the order passed by the Court below. 18. In the result, the appeal fails and it is dismissed. There is no necessity of going into and considering any larger controversy, particularly by referring to the decisions of this Court and of the 17 Supreme Court as to whether in all such matters the alternate relief could be only of damages. That is an aspect which is best left to be decided at an appropriate stage. Needless, therefore, to state that the ad interim order passed by this Court and operative till this date, stands vacated. S.C. DHARMADHIKARI, J. ssm.