INDIAN OIL CORPORATION LIMITED VS M/S SATHYA NARAYANA SERVICE

C.A. No.3534/2023 (IV-A) (Arising out of SLP (C) No.5591 of 2021)

FACTS OF THE CASE

1. On October 31, 2003, Indian Oil Corporation Ltd. (IOC) entered into a petrol/hsd pump dealer agreement with M/S. Sathyanarayana Service Station, the first respondent.
2. Clause (3) of the agreement stated that the agreement would remain in force for fifteen years from October 13, 2003, and continue thereafter for successive periods of five years each unless terminated by either party with three months’ notice.
3. On September 25, 2006, the first respondent sent a communication to the Chief Divisional Retail Sales Manager of IOC, expressing their desire to withdraw from the dealership due to their shift to Bangalore for their children’s education.
4. A notarized version of the withdrawal letter dated October 3, 2006, was received by IOC on November 16, 2006.
5. In response, IOC acknowledged the withdrawal of the dealership and requested the first respondent to continue operations until alternative arrangements were made.
6. The first respondent sent a letter on December 11, 2006, indicating a desire to take back the withdrawal from the dealership, apologizing for the inconvenience caused.
7. On December 21, 2006, IOC sent a letter accepting the withdrawal of the dealership, citing the notarized resignation letter and the subsequent confirmation of resignation as reasons.
8. IOC took possession of the Petroleum Outlet on December 23, 2006, and awarded the dealership to a new dealer on December 28, 2006.
9. The first respondent appealed to the General Manager of IOC after their initial appeal was dismissed, leading to arbitration proceedings.
10. The sole arbitrator’s award, dated January 15, 2009, concluded that the acceptance of the first respondent’s resignation had already been communicated, and the subsequent request to withdraw the resignation was not in accordance with the law.
11. Dissatisfied with the arbitration award, the first respondent appealed to the Principal and Sessions Judge, Mysore, under Section 34 of the Arbitration & Conciliation Act, 1996. The suit was dismissed.
12. The High Court, in an appeal filed by the first respondent, set aside the arbitration award and ordered the restoration of the dealership to the first respondent within three months. If not restored, the first respondent was allowed to seek damages from IOC and its officers.

The case revolved around the interpretation of the dealer agreement, acceptance and withdrawal of the dealership, and the authority of the High Court to set aside an arbitration award.

ISSUES

1. Interpretation of Clause (3): The primary issue is the interpretation of Clause (3) of the agreement, which allows for the termination of the contract by either party with a three-month notice. If the court or arbitrator interpreted the clause in favour of one party, it would have a significant impact on the rights and obligations of both Indian Oil Corporation Ltd. (IOC) and the dealer. In this case, the interpretation of clause (3) was central to determining whether the notice provided by the dealer for termination was valid and effective.
2. Acceptance of Resignation: The acceptance of the withdrawal notice was a crucial issue as it determined when the dealer’s contract with IOC was effectively terminated. If the acceptance was deemed to have occurred upon the receipt of the notarized resignation letter on November 16, 2006, it would mean that the dealer’s agreement was terminated, and IOC had the right to take possession of the dealership. However, if acceptance required further communication or approval, it would impact the legality of IOC’s actions and the dealer’s right to withdraw the resignation.
3. High Court’s Authority: The authority of the High Court to set aside the arbitration award, order the restoration of the dealership to Sathyanarayana Service Station, and allow them to claim damages from IOC is also a point of contention.

ARGUMENTS

Arguments by Indian Oil Corporation Ltd. (IOC):

1. IOC argued that Sathyanarayana Service Station submitted a termination notice on September 25, 2006, and it was notarized on October 3, 2006, indicating their intention to withdraw from the dealership. IOC contends that this notice was clear and valid under Clause (3) of the agreement.
2. IOC claimed that the notice was duly accepted on November 18, 2006, through a letter issued by the Chief Divisional Retail Sales Manager. They argued that this acceptance, even if it was dated later than December 7, 2006, resulted in the termination of the agreement, in accordance with the terms of the contract.
3. IOC pointed out that Sathyanarayana Service Station’s attempt to withdraw the resignation from the dealership on December 11, 2006, did not align with the contract’s terms. They maintained that the withdrawal should not be legally valid.
4. IOC contended that the arbitrator correctly interpreted the contract and found that the termination of the agreement was lawful. They argued that the arbitrator’s decision was within their jurisdiction and was not perverse.
5. IOC argued that the High Court overstepped its authority by setting aside the arbitration award, modifying the award, and ordering the restoration of the dealership to Sathyanarayana Service Station. This was beyond the powers of the High Court under Section 36 of the Arbitration and Conciliation Act, 1996.

Arguments by M/S. Sathyanarayana Service Station:

1. Sathyanarayana Service Station argued that the termination notice sent on September 25, 2006, should not be considered a valid termination of the dealership agreement. They contended that the notice was merely a letter of intention and not a legally binding termination under Clause (3) of the agreement.
2. Sathyanarayana Service Station disputed IOC’s claim of acceptance, asserting that acceptance by the Management of IOC occurred only on December 7, 2006, and not on November 18, 2006, as argued by IOC.They emphasized that this was an important date as it marked the acceptance, and any acceptance prior to this date was not in line with the facts.
3. Sathyanarayana Service Station maintained that they attempted to withdraw the resignation in a letter dated December 11, 2006, which should have been considered by IOC as a valid withdrawal of the earlier notice.
4. Sathyanarayana Service Station argued that the arbitrator’s interpretation was incorrect, and they contended that the termination was not in accordance with the contract terms. They asserted that the arbitrator’s decision was perverse.
5. Sathyanarayana Service Station defended the High Court’s decision to set aside the arbitration award, modify the award, and order the restoration of the dealership to them, claiming that it was legally justified.

JUDGEMENT

1. The Court found that the termination notice issued by Sathyanarayana Service Station on September 25, 2006, was a valid notice of termination, and it was duly accepted by the Indian Oil Corporation (IOC). The Court held that this acceptance resulted in the termination of the dealership agreement in accordance with the terms of the contract.
2. The Court emphasized that the termination notice was clear and valid under Clause (3) of the agreement, and the subsequent withdrawal of the resignation by Sathyanarayana Service Station was not in accordance with the contract terms.
3. The Court held that the arbitrator’s interpretation of the contract was not perverse and was a plausible view, and thus, the High Court had acted illegally in interfering with the arbitrator’s findings.
4. The Court also found that the High Court had exceeded its authority by modifying the arbitration award and directing the restoration of the dealership to Sathyanarayana Service Station.
5. Therefore, the Supreme Court allowed the appeals, set aside the High Court’s judgment, and restored the arbitration award. The Court directed that the parties should bear their respective costs.

This judgment reaffirmed the validity of the termination notice and the acceptance of that notice, resulting in the termination of the dealership agreement between Sathyanarayana Service Station and the Indian Oil Corporation.

REFERENCES

https://indiankanoon.org/doc/121179732/

This Article is written by Rhythm Sharma of Aligarh Muslim University, Intern at Legal Vidhiya.

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