Shree Krishna Automobiles Through Proprietor Punambhai v. Hindustan Petroleum Corporation Limited
2011-04-18
K.M.THAKER
body2011
DigiLaw.ai
JUDGMENT : K.M. Thaker, J. The present petition is directed against the order dated 16th February, 2011, whereby the dealership agreement (“the contract”, for short) between the petitioner and the respondent-Company has been terminated. The petitioner has challenged the said decision on diverse grounds including the ground that the order is vitiated on account of violation of principles of natural justice and is also unsustainable being a non-speaking order in the sense that the various contentions raised and the facts put forward by the petitioner have not been dealt with by the Competent Authority while passing the impugned order. 2. In response to the notice issued under the order of the Court, the respondent has appeared and resisted the petition. A reply affidavit has been filed at the first opportunity, the scope of which is limited to raising objection as regards the maintainability of the petition on the ground of “arbitration agreement” in the contract between the parties. It is evident that since the respondent-Company is resisting the petition on the ground of its maintainability in view of the arbitration clause, the reply affidavit/written reply to the allegations and contentions in the petition on merits has not been filed. 3. The petitioner has also taken out an application being Civil Application No.3447/2011, which is styled as an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). 4. It is, inter alia, claimed in the application as well as in the above referred reply affidavit filed in the petition, that the memorandum of agreement dated 01.08.1976 between the parties contains Clause 29 which obliges the parties to the contract, in the event of any dispute between the parties in relation to or arising from the contract, to go before the arbitrator appointed in accordance with the procedure prescribed under Clause 29 of the agreement and that therefore in view of the mandate contained under Section 8 of the Act, the petition may not be entertained and the parties be relegated to the remedy before the Arbitrator. 5. Learned Senior Counsel Mr. Joshi with learned counsel, Mr. Raval has appeared for the petitioner. Ms. Minoo Shah learned counsel has appeared for the respondent-Company. 6. Mr.
5. Learned Senior Counsel Mr. Joshi with learned counsel, Mr. Raval has appeared for the petitioner. Ms. Minoo Shah learned counsel has appeared for the respondent-Company. 6. Mr. Joshi, Learned Senior Counsel for the petitioner submitted, inter alia, that the agreement in question deserves to be considered in light of the fact that the contract is the source of livelihood for the petitioner and in that sense or to that extent, the agreement does not deserve to be considered or treated like any other routine commercial contract. He has also submitted that by virtue of termination notice, the respondent raked-up an issue, as is apparent, about the change in the constitution of the firm, which occurred way back in the year 1978 and was within the knowledge of the respondent-Company through out the intervening period. In his submission, with the passage of time, the entire set of events stand either expressly or impliedly condoned and in any case, the respondent-Company was aware about the changes in firm's composition and that therefore, there was neither any cause or justification for taking out from the closet the event which occurred way back between 1976 to 1978 and to terminate the agreement on that basis. Mr. Joshi also referred to, in extantio, the provisions under Article 14, 17(A), 17(B), 17(C) (i) and 17(C)(ii) and contended that any of the provisions do not restrain the parties from reconstituting the firm with intimation to the respondent-Company. Mr. Joshi, learned senior counsel extensively referred to the communication dated 7th December, 1977, inspection report dated 30th August, 1999, communication dated 9th February, 1979 and several other documents to support his submission that since 1979-80, the respondent-Company, with knowledge about all the facts, had allowed the agreement to operate without any objection and interruption and that therefore, now after more than 30 years, there is no justification to terminate the agreement and the dealership on the grounds mentioned in the notice. He has also contended that the impugned order goes beyond the scope of the notice and does not deal with any of the contentions raised by the petitioner in defence. 6.1. Mr.Joshi has heavily relied upon the decision of the Hon'ble Apex Court in (2010) 3 SCC 321 and decision in case of Harbanslal Sahnia & Anr. v. India Oil Corpn.
6.1. Mr.Joshi has heavily relied upon the decision of the Hon'ble Apex Court in (2010) 3 SCC 321 and decision in case of Harbanslal Sahnia & Anr. v. India Oil Corpn. Ltd. & Ors., (2003) 2 SCC 107 and submitted that the alternative remedy by way of arbitration need not deter the Court in exercising the jurisdiction under Article 226 of the Constitution of India even in cases where the illegality and arbitrariness is glaring on the face of the record. 6.2. As regard the application being Civil Application No.3447/2011 filed by the respondent-Company, styling it as an application under Section 8 of the Act, Mr. Joshi, learned senior counsel has submitted that the application is not maintainable and writ petition and the power of the Court under Article 226 of the Constitution of India should not be allowed to be taken away by an application under Section 8 of the Act. 7. Per contra, learned counsel for the respondent-Company has heavily relied on the provisions of Section 8 of the Act and above referred Clause 29 in the contract-agreement between the parties. She has also relied upon various orders passed by this Court and the Judgments of Hon'ble Apex Court including the orders passed in other petitions against the respondent-Company and other respondents wherein this Court has, in respect of the application preferred under Section 8 of the Act, in pending petitions, relegated the petitioners to the remedy of arbitration. She placed reliance on the decisions reported in 2008 (8) SCC 172 , 2007 (4) Arb.L.R. 74 (SC), AIR 2005 SC 3454 , 2003 (6) SCC 503 , 2000 (4) SCC 539 etc. and submitted that the petition may not be entertained and the petitioner may be relegated to the remedy of arbitration. 7.1. She also contended that the facts stated by the petitioner and the contentions raised in the petition give rise to several disputed questions of facts which even otherwise also, may not be gone into and examined by the Court in exercise of petition under Article 226 of the Constitution of India and it would, in view of Clause 29 of the Contract, require proceedings before the Arbitrator.
She has, obviously, disputed all contentions and allegations based on factual aspects and submitted that the claim of the petitioner that the irregularity if any was condoned by the respondent and/or that the fact that almost 30 years have passed since event took place is sufficient enough to hold that the respondent-Company condoned the event with knowledge of the development or changes in the constitution of the firm, is not substantiated by any material and is nothing but convenient wishful thinking. She submitted that the facts were not clearly and without any ambiguously brought to the notice of the respondent-Company and the constitution of the erstwhile original partnership came to be changed without information as well as without consent of the respondent-Company, which is a mandatory requirement as per the terms of the contract. 8. I have perused the record of the petition and also documents referred to and heavily relied upon by the learned counsel for the petitioner. I have also taken into consideration the rival submissions and contentions made by the contesting parties. 8.1. It is not in dispute that the agreement awarding dealership for kerosene came to be executed by and between the parties. The contract was executed on 1st August, 1976. At the relevant time, there were four partners in the petitioner-firm with whom the respondent-Company had executed the contract. It is the case of the respondent-Company that subsequently, without intimation to and consent of the respondent-Company, the petitioner substantially and materially changed the constitution of the firm which amounts to breach of terms of the contract and that therefore, notice dated 16th February, 2011 was issued asking the petitioner to show cause as to why the distributorship-dealership should not be terminated. Explanation-reply given by the petitioner was not found satisfactory by the respondent-Company and, therefore, by the impugned order, the respondent-Company terminated the contract and the distributorship. 8.2. It is true that almost three decades have passed since the alleged breach of terms of the agreement took place.
Explanation-reply given by the petitioner was not found satisfactory by the respondent-Company and, therefore, by the impugned order, the respondent-Company terminated the contract and the distributorship. 8.2. It is true that almost three decades have passed since the alleged breach of terms of the agreement took place. To an extent, the petitioner may be justified in contending that the fact that the respondents have assigned and allotted different consumer/distributor code numbers to the divided firm and the continuation of the contract over period of more than 30 years has remained in operation and the length of time are eloquent evidence of the fact that the alleged breach, if any, was treated as condoned by the respondent-Company. 8.3. However, it is the case of the respondent-Company that the correct, actual, complete and relevant facts, which would be necessary for the respondent-Company to reach to proper and right conclusion, came to the notice of the respondent-Company only when certain investigation was carried out and it was the material gathered during the inquiry which brought to surface the correct and complete picture of the fact-situation and that therefore the notice dated 16th February, 2011 came to be issued. 8.4. Whether the action sought to be taken is within reasonable time or not, ought to be judged from the fact as to when the details of the alleged breach came to the notice of the respondent-Company and that is, ideally, matter within the realm of Arbitrator. 8.5. Thus, the facts of the case, the rival claims and allegations establish that the “dispute and difference” contemplated under Clause 29 of the Arbitration agreement in the contract between the parties have arisen and exist between the parties and that therefore, it would be appropriate to leave the issue and let it be decided by the Arbitrator to be appointed in accordance with the provisions under Clause 29 of the agreement. The said Clause 29 of the contract reads thus :- “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 in the course of his duties as an officer of the corporation he had expressed views on all or any other 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 reasons, 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 persons 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 or re-enactment thereof and the rules made there under for the time being in force shall apply to the arbitration proceedings under this clause." 8.6. The contentions raised by the respondent-Company and the factual assertions of the petitioner, which are disputed by the respondent-Company, give rise to the position that the dispute or the difference between the parties give rise to disputed questions of facts. 8.7. Differently put disputed issues of fact are also involved-raised in this proceedings. Besides this and having regard to the nature of the controversy, it appears that in the present case, Arbitration would prove not only effective but even expeditious remedy also. 9. The petitioner had consciously agreed to the remedy of Arbitration while entering into the contract and now there is no need or justification to permit the petitioner to wriggle out of the said provisions. 9.1. In light of the rival contentions and the documentary support, the remedy of writ petition is not and would not be proper proceedings or remedy. 9.2.
9.1. In light of the rival contentions and the documentary support, the remedy of writ petition is not and would not be proper proceedings or remedy. 9.2. When there is express provision obliging parties to the contract to go before the Arbitrator, this Court would be reluctant to render the term-clause of the contract, otiose. 10. Under the circumstances, on over all consideration of the facts and circumstances, I am of the view that in present petition, it would be appropriate to allow the Arbitration remedy to take its own course and to relegate the parties to arbitration proceedings instead of entertaining the petition at this stage. 10.1. It is trite to say that the arbitration agreement between the parties should be given full scope and the process of Arbitration may be preferred over the traditional process of litigation. 11. Once this conclusion is reached, in comes the request for interim relief. The petitioner would submit that the Court may grant appropriate interim relief and also direct that it should enure until the award may be passed by the Arbitrator. 11.1 The petitioner has, in the petition, by virtue of Para Nos.7(C) and 7(D) prayed for interim relief. 12. At this stage, it is necessary to note that by virtue of the order dated 1st March, 2011, this Court (Coram : Rajesh H. Shukla, J.) had granted interim relief in terms of Para No.7(C). The said order has remained in operation until now. 12.1. In view of and as a result of the interim order, the operation of the impugned order, by which the respondent-Company terminated the dealership, has remained stayed. The position which may emerge upon disposal of present petition would lead to impugned order coming into force and thereby cessation of dealership. 12.2. Thus, though ordinarily when the writ Court relegates the parties to the alternative remedy, the interim relief granted during the pendency of the petition is not continued. 12.3. However, in present case, there is an additional feature viz., the petition is presented in the “Court” before invocation of arbitration and interim relief has been granted, which has been in operation for almost 1½ months. Section 9 of the Act contemplates that even before invocation of Arbitration, appropriate order of interim nature may be passed.
12.3. However, in present case, there is an additional feature viz., the petition is presented in the “Court” before invocation of arbitration and interim relief has been granted, which has been in operation for almost 1½ months. Section 9 of the Act contemplates that even before invocation of Arbitration, appropriate order of interim nature may be passed. Thus, if a party to the contract containing arbitration clause seeks arbitration, or intends to seek arbitration, and if the facts of the case demand interim relief before the Arbitration is invoked or before the proceedings begin, then it can, in appropriate case, make appropriate application before the Court and seek appropriate relief, by way of interim relief, under Section 9 of the Act even before the actual commencement of the arbitration proceedings. 12.4. The said Section 2(e) and Section 9 of the Act reads thus :- “2(e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not-include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes." “9. Interim measures, etc. by Court.
Interim measures, etc. by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court - (i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely :- (a) the preservation, interim custody or sale of any goods, which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detection, preservation or inspection of any property, or things which is subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it." 12.5. It can be seen that the said Section 9 postulates that even before arbitral proceedings commence and/or during the arbitral proceedings, a party may seek “interim measure of protection” for preservation of “any thing” which is the “subject matter of dispute” in arbitration or can seek interim injunction or such other interim measures of protection as may be just. 12.6. In present case, the interim order has been in operation since March, 2011. As contended by the petitioner, since the date when the order was passed, until now, the impugned order has not taken effect and the operation has been stayed by the order of this Court. 12.7. It is also contended by the petitioner that the dealership is the only source of livelihood of the petitioner. 12.8.
As contended by the petitioner, since the date when the order was passed, until now, the impugned order has not taken effect and the operation has been stayed by the order of this Court. 12.7. It is also contended by the petitioner that the dealership is the only source of livelihood of the petitioner. 12.8. Under the circumstances, it is considered appropriate and in the fitness of things as well as in the interest of justice that until appropriate time, the order of interim relief which has been in operation since 1½ months, may be continued for some appropriate time. 13(a) The petition is disposed of in view of the Clause 29 in the contract, which provides that the parties, in the event of dispute or differences arising out of the contract, should approach the Arbitrator. Thus, the petition is not entertained and petitioner is directed to go for Arbitration as per Clause 29 of the Contract. 13(b) Hence, the parties are hereby relegated to arbitration. The petitioner shall follow the prescribed procedure for invoking Clause 29 and seeking Arbitration in the matter of its claim. 13(c) If and when the application is made, the Competent Authority shall take appropriate decision within a period of 10 days after the receipt of the application and either itself enter into the reference or nominate any person to act as an Arbitrator. 13(d) The Arbitrator so nominated or the Competent Authority (if it acts as Arbitrator) shall give intimation about the date, time and venue of the first meeting of arbitration proceedings to the parties. 13(e) It would be open to the petitioner to submit an application seeking appropriate interim relief before the Arbitrator. However, the said application should be presented by the petitioner on the first date of hearing which shall be, as aforesaid, intimated to the concerned parties. 13(f) If and when such application is submitted, the Arbitrator so nominated shall take it into consideration and after hearing both sides pass appropriate order thereon, in accordance with law and in light of the facts and evidence. 14.
13(f) If and when such application is submitted, the Arbitrator so nominated shall take it into consideration and after hearing both sides pass appropriate order thereon, in accordance with law and in light of the facts and evidence. 14. In view of the aforesaid directions and clarifications, it is further observed and clarified that if the petitioner makes application invoking Clause 29 of the agreement and seeks arbitration, within a period of 15 days then the order of interim relief passed by this Court on 1st March, 2011 shall continue to operate and the order shall remain in operation only until the date of first sitting fixed by the Arbitrator when the petitioner can file application for interim relief on the first date of hearing. 15. The petitioner has prayed that the interim relief granted vide order dated 01.03.2011 may be continued until the Arbitrator makes the award. However, the Court's discretion – in the matter of interim relief – should end at the doorstep of Arbitrator. Thus, this Court is not inclined to grant, and in propriety the Court ought not grant or continue the interim relief beyond the date on which the Arbitrator enters reference. 15.1. The Apex Court in the case between Hindustan Petroleum Corporation Ltd. v. Pinkcity Midweay Petroleum (AIR 2003 (6) SCC 603), in the Para-14 of the judgment, while referring to the earlier judgment in the case between P. Anand Gajapathi Raju and others v. P.V. G. Raju. (AIR 2000 (4) SCC 539 ), has observed “....Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made to refer the dispute to an arbitrator...”. 15.2. In the decision of P. Anand Gajapathi Raju and others v. P.V. G. Raju. (AIR 2000 (4) SCC 539 ), the Apex Court has observed “...The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act.
Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award....”. 15.3. Thus, any interim relief which may have effect until the arbitration proceedings conclude and the award becomes final ....” cannot be granted by the Court, while as long the parties to go to the arbitration and that therefore, it is necessary to restrict the operation of existing interim relief until the date on which, the arbitrator enters into the reference i.e. scheduled, under intimation to the parties, the first date of hearing and the petitioner gets opportunity to tender the application seeking interim relief. It would not be impropriety and/or in consonance with conjoint reading of Section 8, Section 9 and Section 16 of the Act, to continue the operation of the existing interim relief beyond the said date. 16. It is, however, clarified that if the petitioner fails to make such application within the time specified herein above, the interim order of this Court shall not come in effect. 17. The Arbitrator shall pass order on the application for interim relief as he thinks necessary and appropriate in the facts and circumstances of the case, without being influenced by present order. 18. With these observations, the petition is disposed of. 19. Learned counsel for the parties have requested for stay of operation of the present order. However, in view of the fact that time limit as observed herein above has already been provided, there is no need to stay the operation of the order. 20. In view of the order passed in main matter, Civil Application No. 3447 of 2011 filed under Section 8 of the Arbitration and Conciliation Act, 1996 does not survive and stands disposed of accordingly. Order accordingly.