Case Note & Summary
The case involves a challenge by Indian Oil Corporation Limited (Petitioner) against an Arbitral Award dated 25 June 2009 passed by a sole arbitrator. The Respondent, M/s. Vijay Automotive Services, was appointed as a dealer for selling petrol and petroleum products under an agreement dated 20 February 1974. The dealership performed poorly, with zero sales, and despite show cause notices dated 8 March 2005 and 24 May 2005, the Respondent failed to improve. The Respondent replied on 15 July 2005 citing financial problems but the explanation was unsatisfactory, leading to termination of the dealership on 2 September 2005. The Respondent invoked arbitration clause 69 on 16 December 2005. During arbitration, the Petitioner appointed another dealer, which the Respondent challenged in civil court without success. The Arbitrator, despite finding that the Respondent's performance was unsatisfactory, quashed the termination and directed restoration of dealership and execution of a fresh agreement for a resited location. The Petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The High Court held that the Arbitrator's award was perverse as it ignored the admitted fact of unsatisfactory performance and the terms of the agreement. The court noted that the Arbitrator's finding that termination was unjustified was contrary to the evidence and the contract. The court set aside the award, holding that the termination was valid and the award was liable to be set aside for perversity.
Headnote
A) Arbitration - Setting Aside Award - Perversity - Section 34 Arbitration and Conciliation Act, 1996 - The court examined whether the Arbitrator's award quashing termination of dealership was perverse. The Arbitrator ignored the admitted fact that the dealer's performance was unsatisfactory and that the termination was in accordance with the agreement. The court held that the award was perverse and liable to be set aside as it failed to consider material evidence and the terms of the contract. (Paras 4-6) B) Contract Law - Termination of Dealership - Breach of Terms - The dealership agreement dated 20 February 1974 was terminated due to zero sales and failure to improve despite show cause notices. The Arbitrator's finding that termination was unjustified was contrary to the evidence and the agreement. The court held that the termination was valid and the award restoring dealership was unsustainable. (Paras 2-5)
Issue of Consideration
Whether the Arbitral Award dated 25 June 2009, which quashed the termination of dealership and directed restoration, is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 for being perverse and contrary to the terms of the agreement.
Final Decision
The court allowed the petition and set aside the Arbitral Award dated 25 June 2009.
Law Points
- Arbitration
- Contract Law
- Termination of Dealership
- Perversity
- Natural Justice
