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CHODAY SANYASI RAO, HPC RETAIL OUTLET, SAMALKOT, EAST GODAVARI DISTRICT VS. HINDUSTAN PETROLEUM CORPORATION LIMITED, VISAKHAPATNAM , decided on Monday, December 9, 2002.
[ In the High Court of Andhra Pradesh, W.P. 18538 of 2002 . ] 09/12/2002
Judge(s) : CHIEF DR. AR. LAKSHMANAN & C.V. RAMULU
Advocate(s) : M.Ravindra Nath Reddy, N.Siva Reddy, V.Venkata Ramaiah.
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  "2003 (1) ALD 692"  ==   ""  







    Subject Index:Arbitration and Conciliation Act 1996 - S.16 -Cases Referred:M/s. Sri Lalitha Devi Gas Agencies v. Hindustan Petroleum Corporation Ltd. 2002 5 ALD 389 Konkan Railway Corporation Ltd. v. Mehul Construction Co. AIR 2000 SC 2821 Life Insurance Corpn. of India v. Asha Goel 2001 2 SCC 160 N.S. Shethna v. Vinubhai AIR 1967 SC 1036 Rajasthan State Mines and Minerals Ltd. v. Eastern Engg. Enterprises AIR 1999 SC 3627     AR. LAKSHMANAN C.J.( 1 ) WITH the consent of the learned Counsel appearing for the parties both the Writ petition and the Writ Appeal were heard together and are being disposed of by this common judgment. ( 2 ) THE writ petition was filed by the petitioner originally to declare the letter bearing No. VRO/bak/ret dated 16. 9. 2002 issued by the respondent-Corporation as illegal arbitrary and inoperative. Later the petitioner challenged the order passed by the respondent-Corporation in Ref. VRO/ bak//ret dated 5. 10. 2002 by way of amendment. The prayer was granted as per court order dated 11. 10. 2002 in W. P. M. P. No. 25154 of 2002. ( 3 ) THE parties will be referred to by their status in the Writ Petition. ( 4 ) THE petitioner herein is a partnership firm registered under the provisions of the Indian Partnership Act 1932 on 3. 4. 2002 and entered into an agreement with the respondent-Corporation on 10. 4. 2002 to sell all its petroleum products in retail at Samalkot in East Godavari District. The petitioners business premises were inspected by the officers of the respondent-Corporation on 28. 8. 2002. The inspecting officer conducted density test to the products of M. S. and h. S. D. available in the underground tanks of the outlet of the petitioner and found that the samples are not in conformity with the specifications. The respondent issued a letter on 4. 9. 2002 informing the petitioner that one of the M. S. samples drawn from its outlet on 28. 8. 2002 was failed in respect of clinical tests. i.e. distillation and gum tests though it passed the density test and directed the petitioner to stop sales and supplies. The petitioner thereafter received the impugned notice dated 16. 9. 2002 from the respondent on 19. 9. 2002. In the said notice it is stated that the earlier firm of the petitioner was awarded a punishment and this mistake is a second one and as such the petitioner was asked to show-cause why action should not be taken for termination of dealership. Against the said show-cause the present writ petition was filed. ( 5 ) THIS Court by order dated 26. 9. 2002 directed the petitioner to submit its explanation within three days and the respondent was permitted to pass appropriate orders within ten days thereafter. Pursuant to the said direction the petitioner submitted its explanation on 27. 9. 2002. The respondent thereafter passed final orders in the notice vide his letter dated 5. 10. 2002 wherein the dealership agreement dated 10. 4. 2002 of the petitioner was terminated. Therefore the petitioner filed a petition for amendment of the prayer in the writ petition. As stated earlier the prayer was allowed as per the orders of this Court dated 11. 10. 2002. Thus the show cause notice dated 16. 9. 2002 and the order dated 5. 10. 2002 are challenged as illegal arbitrary and inoperative and for a consequential direction directing the respondent to drop all further proceedings against the petitioner and restore the sale and supplies of all petroleum products to the petitioners outlet. ( 6 ) DURING the pendency of the writ petition the petitioner filed WPMP No. 25155 of 2002 to suspend the operation of the letter dated 5. 10. 2002 of the respondent addressed to the petitioner pending disposal of the writ petition. The learned Single Judge by the order dated 11. 10. 2002 suspended the impugned order pending further orders and directed the respondent-Corporation to continue supply of commodity to the petitioner on its depositing an amount of Rs. 50 000/- as a measure of tentative penalty. It was made clear that if any violation on the part of the petitioner is detected it would be open to the respondent to terminate the dealership inasmuch as the same constitutes the second violation. Aggrieved by the said order the respondent-Corporation filed the writ Appeal contending that the order of the learned Single Judge is contrary to law and also contending that the writ petition is not maintainable as the disputes in question arising out of contracts of dealership which is a commercial contract are specifically governed by the arbitration agreement.( 7 ) WE have heard Sri V. Venkataramana learned Counsel appearing for the petitioner and Sri M. Ravindranath Reddy learned Counsel appearing for the respondent-Corporation. ( 8 ) MR. Venkataramana would submit that even according to the impugned order dated 5. 10. 2002 a fresh dealership was entered into with the petitioner on 10. 4. 2002 and the alleged violation for which the dealership was cancelled is only the first one. He placed reliance upon the Marketing discipline Guidelines 2001 wherein the penal action for the first violation of alteration is Rs. 20 000/- and suspension of sales for 30 days. It is his case that the present violation being the fist violation since 10. 4. 2002 the cancellation of dealership is untenable. He also invited our attention to partnership deed dated 1. 7. 2001 which was entered into between Choday Sanyasi Rao and Chodya Jankiramayya Chowdary. It appears that the said parties had previously entered into an agreement with effect on and from 1. 4. 2001 and have been carrying on business as a retail outlet dealers of Hindustan Petroleum Corporation Ltd. Visakhapatnam under the name and style of M/s. Choday Sanyasi Rao at Samalkot in accordance with the terms and conditions of the partnership agreement dated 1. 4. 2001 and in order to revise the terms and conditions of the partnership agreement dated 1. 4. 2001 with effect from 1. 8. 2001 the present partnership agreement dated 1. 7. 2001 was entered into by the parties. Our attention was also drawn to the petrol / diesel dealership agreement dated 10. 4. 2002 entered into between Hindustan Petroleum Corporation ltd. and the partnership firm in the name of M/s. Choday Sanyasi Rao. Under the said agreement the Corporation appointed the writ petitioner as dealer for the retail sale and supply of petroleum/diesel/motor oils/greases and other products from time to time in accordance with terms and conditions of the agreement. As per Clause 3 of the agreement the agreement shall remain in force for fifteen years from 10. 4. 2002. However the same may be determined without assigning any reasons by either party by giving three months notice in writing to the other of its intention to terminate the agreement and upon the expiration of any such notice the agreement and the licence granted shall stand cancelled and revoked but without prejudice to the rights of either party against the other in respect of any matter or thing antecedent to such termination. Our attention has also been drawn to Clauses 64 and 66 of the said agreement which reads thus: 64. In the event of the termination of this agreement under the provisions here in above contained the dealer shall not be entitled to any compensation or claim any loss or damage from the Corporation in respect of goodwill or Otherwise. 66. Any dispute or difference of any nature whatsoever or regarding any right liability act omission or account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitration of the Managing Director of the corporation or of some officer of the corporation who may be nominated by the managing Director The dealer will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that the course of his duties as an officer of the Corporation he had expressed views on all or any of the matters in dispute or difference. In the event of the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Managing Director as aforesaid at the time of such transfer vacation of office or inability to act shall designate another person to act as arbitrator in accordance with the terms of the agreement such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Managing Director or a person nominated by such Managing Director of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the arbitrator so appointed shall be final conclusive and binding on all parties to the agreement subject to the provisions of the arbitration Act 1940 or any statutory modification of 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. This award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four months as the sole arbitrator shall by writing under his own hands appoint.( 9 ) PLACING reliance on the above clauses Mr. Venktaramana would submit that the present firm entered into an agreement only on 10. 4. 2002 pursuant to the partnership deed entered into under the provisions of the Partnership Act and under these circumstances the irregularities said to have been committed prior to the new agreement dated 10. 4. 2002 should not be treated as an irregularity committed by the present firm and that the present firm should not be penalised for the mistakes committed by the previous firm. Therefore the petitioner requested the respondent- corporation to drop the allegations against the present firm and also to drop the action in that regard against it. The explanation offered by the petitioner was not accepted by the Corporation by the impugned order dated 5. 10. 2002. ( 10 ) PLACING reliance on Clause 64 Mr. Venkataramana would submit that since clause 64 prohibits the dealer to claim any compensation or claim any loss or damages from the Corporation in respect of the goodwill or otherwise in the event of termination this issue can be agitated and decided and resolved only in the writ petition and not by the arbitrator as provided in clause 66 of the dealership agreement. ( 11 ) PER contra Mr. Ravindranath Reddy would submit that the writ petition is not maintainable on the ground that there is a specific clause of arbitration provided in clause 66 of the dealership agreement and that this point is covered by various judgments of the Supreme Court including the judgment of this Court in M/s. Sri Lalitha Devi Gas Agencies v. Hindustan petroleum Corporation Ltd. 2002 (5) ALD 389 = 2002 (5) ALT 516 (DB) rendered by one of us viz. Dr. AR. Lakshmanan CJ sitting with V. Eswaraiah . He has also placed reliance on the judgments of the madras High Court in W. A. Nos. 521 and 527 of 2000 and batch dated 14. 7. 2002 and judgment dated 23. 4. 2001 in C. R. P. No. 654 of 2001 judgment dated 5. 11. 2001 in w. P. No. 13539 of 2001 and W. A. No. 2665 of 2001. He also placed reliance on the following judgments in support of his contention. 1. AIR 2000 SC 3107 2. 2001 (1) Raj 56 = 199 (2) ARB. LR 405 (B) 3. 2001 (1) Raj 103 (0) 4. 1998 (3) Raj 248 = 1998 (2) ARB. LR 258 (D) 5. 1999 (2) Raj 314 (B)( 12 ) RELIANCE has also been placed on the judgments of the Apex Court in Rajasthan State Mines and Minerals Ltd. v. Eastern Engg. Enterprises AIR 1999 sc 3627 Life Insurance Corpn. of India v. Asha Goel (2001) 2 SCC 160 N. S. Shethna v. Vinubhai AIR 1967 SC 1036. ( 13 ) WITHOUT prejudice to the above contentions in regard to the maintainability of the writ petition Mr. Ravindranath Reddy submitted that the contention that issue falling under Clause 64 of the agreement is not covered by the arbitration clause and therefore the petitioner is entitled to maintain the writ petition is one without basis and such a contention is not valid in law for more than one reason. He would further submit that in spite of existence of a clause similar to Clause 64 in the present agreement which was subject matter in Sri Lalitha Devi Gas Agencies case (supra) still this Court disposed of the writ petition as not maintainable and relegated the parties to arbitration clause contained therein. He would further submit that whether the claim falling under Clause 64 of the agreement can be gone into by the arbitrator or not is also within the jurisdiction of arbitrator himself by virtue of Section 16 of the Arbitration and Conciliation Act 1996 and that is the departure made from the old act of 1940 and this is more evident in view of exclusion of the provision of section 5 of 1940 Act in the 1996 Act. ( 14 ) WE see merit and substance in the above submissions made by Sri Ravindranath Reddy. We have already extracted Clauses 64 and 66 of the agreement. The claim falling under Clause 64 of the agreement in our opinion can also be gone into by the arbitrator. ( 15 ) SECTION 16 of Arbitration and conciliation Act 1996 reads as follows: competence of arbitral Tribunal to rule on its jurisdiction : (1) The arbitral tribunal may rule on its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement and for that purpose (a) an arbitration clause which forms part of a contract shall be treated as a agreement independent of the other terms of the contract; and (b) a decision by the arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however a party shall not be precluded from raising such a plea merely because that he has appointed or participated in the appointment of an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral Tribunal may in either of the cases referred to in sub-section (2) or sub- section (3) admit a later plea if it considers the delay justified. (5) The arbitral Tribunal shall decide on a plea referred to in sub-section (2) or sub- section (3) and where the arbitral Tribunal takes a decision rejecting the plea continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.( 16 ) THIS Section corresponds to article 16 of the UNCITRAL Model Law and Sections 30 and 31 of the English arbitration Act 1996. There was no corresponding provision in the Act 1940. The law as codified in this Section is a major departure from the provisions in this regard contained in the Act 1940. The controversy in regard to the competence of the arbitral Tribunal to rule on its own jurisdiction that existed under the Act of 1940 has now been put at rest by Section 16. Under this Section the arbitral Tribunal is competent to rule on its own jurisdiction in relation to the arbitral proceedings. If two parties purport to enter into a contract and a dispute arises whether they have done so or not or whether the alleged contract is binding on them there is no reason why they should not submit that dispute to arbitration. Under this Section the arbitral tribunal is competent to rule on its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement. The power conferred on the arbitral Tribunal under this section to rule on its own jurisdiction is not subject to the agreement of the parties which is evident from the absence of the expression unless otherwise agreed by the parties which precedes most of the non- mandatory provisions of the Act. This provision is mandatory. The parties to the arbitration by agreement cannot exclude the arbitral Tribunals competence to rule on its own jurisdiction. An arbitration clause is treated as an agreement independent of the other terms of the contract and arbitral tribunal has power to rule on its own jurisdiction. As held by the Supreme Court in the case of Konkan Railway corporation Ltd. v. Mehul Construction co. AIR 2000 SC 2821 the power that exercised by the Chief Justice or his designated nominee under Section 11 of the Act is administrative in the nature unless the Chief Justice or his designated nominee can be absolutely sure that there exists no arbitration agreement between the parties it would be difficult to state that there should be no reference to arbitration. Further such a view may not be conclusive in view of the nature of the powers that are exercised under sub-section (6) of Section 11 of the Act. Therefore in a matter where there has been some transaction between the parties and the existence of the arbitration agreement is in challenge the proper course for the parties is to thrash out such question under Section 16 of the Act rather than under Section 11 of the Act. ( 17 ) THEREFORE in our considered opinion the claim falling under Clause 64 of the agreement can be gone into by the arbitration and it is within the jurisdiction of the arbitrator himself by virtue of Section 16 of the arbitration and Conciliation Act 1996. The learned Counsel for the petitioner has relied upon the decision of the Apex Court in Rajasthan State Mines and Minerals Ltd. v. Eastern Engg. Enterprises (supra). Para 44 of the said judgment reads as follows: from the resume of the aforesaid decisions it can be stated that: (a) It is not open to the Court to speculate whereon reasons are given by the arbitrator as to what impelled arbitrator to arrive at his conclusion (b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his jurisdiction then the Court cannot interfere (d) If no specific question of law is referred the decision of the arbitrator on that question is not final however much it may be within the jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties then the finding of the arbitrator on the said question between the parties may be binding (e) In a case of non-speaking award the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction (f) To find out whether the arbitrator has travelled beyond his jurisdiction it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction - is a different ground from the error apparent on the face of the award (g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction (h) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated by the parties in the agreement that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental construction Co. Ltd. (supra) by relying upon the following passage from M/s. Alopi Parshad v. Union of India 1960 (2) SCR 703 which is to the following effect: there it was observed that a contract is not frustrated merely because the circumstances in which the contract was made altered. The contract Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration for performance of the contract at rates different from the stipulated rates on some vague plea of equity. The parties to an executory contract are often faced in the course of carrying it out with a turn of event which they did not at all anticipate a wholly abnormal rise of fall in prices a sudden depreciation of currency an unexpected obstacle to execution or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events the performance of the contract may become onerous. (i) The arbitrator could not act arbitrarily irrationally capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action (j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a Tribunal selected by the parties to decide the disputes according to law.( 18 ) THE above judgment is distinguishable on facts and on law. The judgment was rendered under the provisions of Arbitration act 1940 wherein there was no provision as contained in Section 16 of the Arbitration and Conciliation Act 1996 and hence in our opinion it has no relevance to the issue in question which falls under 1996 act. ( 19 ) THE learned Counsel for the respondent-Corporation conceded that even assuming that the claim or dispute falling under clause 64 of the Agreement is not covered by Arbitration Clause 66 still it cannot be contended that such a claim or dispute can be gone into in the proceedings under Article 226 of the Constitution. It is submitted further that the new partnership was given effect to on 1. 4. 2001 and both the offences dated 17. 1. 2002 and 28. 8. 2002 are subsequent to the commencement of partnership. We are not inclined to consider the said aspect on merits since in our opinion the matter should be referred to the arbitrator under Clause 66 of the agreement and the respondent-Corporation may agitate the said aspect before the arbitrator. ( 20 ) A close scrutiny of Clause 66 would make it clear that any dispute or difference of any nature whatsoever or regarding any right liability act omission or account of any the parties hereto arising out of or in relation to the agreement shall be referred to the sole arbitration of the managing Director of the Corporation or of some officer of the Corporation who may be nominated by the Managing Director. In view of the above specific clause the arbitrator should deal with the matter. The arbitrator is given wide power and jurisdiction to deal with any dispute or difference of any nature arising out of the contract in question. Both the petitioner and the respondents are at liberty to raise all the contentions which have already been raised in the writ petition and also in the writ appeal and file any other additional document if they so choose. The arbitrator shall immediately after entering upon the appearance may issue notices to both the parties and then proceed further to consider all the claims made by the petitioner and respondent- Corporation. ( 21 ) THE Writ Petition and the Writ appeal are disposed of accordingly. The interim direction granted by the learned single Judge in WPMP No. 25155 of 2002 dated 11-10-2002 will continue to operate and both parties are at liberty to approach the arbitrator and take further orders from him. There shall be no order as to costs.