Matter: Indian Oil Corporation v. Shree Ganesh Petroleum Rajgurunagar
Order dated: 01 February 2022
Summary:
Indian Oil Corporation (“Indian Oil”) took a land on lease from Shree Ganesh Petroleum (“Shree Ganesh”) under a lease agreement to set up a retail outlet for sale of its petroleum products. The lease agreement was for a period of 29 years, after which the agreement contemplated renewal by mutual consent. Indian Oil then entered into a dealership agreement with Shree Ganesh, under which Shree Ganesh was appointed as the dealer of Indian Oil’s retail outlet. The dealership agreement was in force for a period of 15 years and was contemplated to continue thereafter for successive periods of one year each until either party terminated it with three months’ notice. In 2008, Indian Oil noticed irregularities in the functioning of the petrol outlet, and it terminated the dealership of Shree Ganesh and demanded that it vacate the premises. Shree Ganesh invoked arbitration under the dealership
agreement.
In its statement of claim, as an alternative to seeking the setting aside of the termination of the dealership agreement, Shree Ganesh requested an amendment of the lease agreement to enhance the monthly rent of the premises to INR 35,000 (from INR 1,750), with a 20% increase after every three years. The Arbitral Tribunal increased the rent to INR 10,000 with a 10% increase after every three years. The District Court, hearing an appeal against the Arbitral Tribunal’s order, ruled that the Arbitral Tribunal was correct in enhancing the rent, on the grounds that the terms of an agreement, if wholly prejudicial or capable of causing grave
injustice, could be examined not only by a court of justice but also an arbitrator. The District Court’s order which made certain alteration in the Arbitral Tribunal’s award was then challenged before the Bombay HC wherein it was held that there was no scope for the District Court to interfere with the award. The Bombay HC’s order was appealed before the SC.
SC noted that Shree Ganesh invoked the arbitration clause under the dealership agreement, which was distinct and separate from the lease agreement, and therefore the Arbitral Tribunal appointed under the dealership agreement had no authority and/or jurisdiction to adjudicate any dispute pertaining to the lease agreement. Therefore, the decision of the Arbitral Tribunal enhancing the lease rent is patently beyond the scope of the dealership agreement and is liable to be set aside. Further, the SC opined that an Arbitral Tribunal, or for that matter, the court cannot alter the terms and conditions of a valid contract executed between the parties with their eyes open, and an award which is passed ignoring the terms of a contract would not be in public interest.
