2022 Supreme(SC) 74

SUPREME COURT OF INDIA
(From the High Court of Judicature at Bombay)
INDIRA BANERJEE, ABHAY S. OKA, JJ.
Indian Oil Corporation Ltd., Through its Senior Manager – Appellant
Versus
M/s Shree Ganesh Petroleum Rajgurunagar Through its Proprietor Mr. Laxman Dagdu Thite - Respondent
Civil Appeal Nos. 837-838 of 2022 [Arising out of Special Leave Petition (Civil) Nos.35970-71 of 2016]
Decided on : 01-02-2022

Headnote:

LEASE - ARBITRATION - JURISDICTION - PUBLIC POLICY - LEASE AGREEMENT AND DEALERSHIP AGREEMENT ARE DISTINCT AGREEMENTS, INDEPENDENT OF EACH OTHER - ARBITRAL TRIBUNAL APPOINTED UNDER DEALERSHIP AGREEMENT HAS NO JURISDICTION TO ADJUDICATE DISPUTES PERTAINING TO LEASE AGREEMENT - AWARD DEALING WITH DISPUTES WITH REGARD TO LEASE AGREEMENT IS LIABLE TO BE SET ASIDE - ENHANCEMENT OF LEASE RENT BY ARBITRAL TRIBUNAL IS PATENTLY BEYOND THE SCOPE OF SUBMISSION TO ARBITRATION - DECISION ENHANCING THE LEASE RENT IS PATENTLY BEYOND THE SCOPE OF THE SUBMISSION TO ARBITRATION.

Fact of the Case:

Appellant took a plot of land on lease from Respondent for a term of 29 years for setting up a retail outlet for sale of petroleum products. The deed of lease contained a clause providing for reference of disputes to the sole arbitration of the Managing Director of the Appellant. The Appellant was also appointed a dealer of the said retail outlet by the Respondent and a dealership agreement was executed between the parties. The dealership agreement provided for reference of disputes to the sole arbitration of the Director (Marketing) of the Appellant. During a routine inspection, certain irregularities were noticed with regard to functioning of the retail outlet. The Appellant terminated the dealership of the Respondent and called upon the Respondent to vacate the retail outlet. The Respondent invoked the arbitration clause in the dealership agreement and the Director (Marketing) of the Appellant appointed an Arbitrator. The Arbitrator made an award holding that the Respondent had committed breaches of the dealership agreement and the termination of dealership was valid. The Arbitrator also enhanced the monthly lease rent of the said land from Rs.1750/- to Rs.10000/- with 10% increase after every three years. The Appellant filed an application for setting aside of the award in the Court of the District Judge, Pune. The District Judge allowed the Counter Objection of the Respondent to the award in part and modified the award by deleting the last clause, that is, “and the period of Lease Deed to be kept as per the period mentioned in the advertisement published in the newspapers on 6.7.2005”. Both the Respondent and Appellant appealed to the Bombay High Court. The High Court partly allowed the Arbitration Appeal filed by the Respondent and dismissed the Arbitration Appeal filed by the Appellant.

Finding of the Court:

The High Court erred in holding that the Appellant had not objected to the competence or the authority or jurisdiction of the learned Arbitrator to entertain and decide disputes with regard to lease agreement. The Arbitrator appointed under the dealership agreement had no jurisdiction to adjudicate disputes pertaining to the lease agreement. The award insofar as it pertains to lease rent and lease period is patently beyond the scope of the competence of the Arbitrator. The impugned award is liable to be set aside to the extent that the Arbitrator has increased the monthly lease rent of the land in question from Rs.1750/-to Rs.10000/-with 10% increase after every three years w.e.f. the date of the termination of the dealership and to the extent the Arbitrator has reduced the period of lease from 29 years to 19 years and 11 months.

Issues: Whether the Arbitral Tribunal appointed under the dealership agreement had jurisdiction to adjudicate disputes pertaining to the lease agreement.

Ratio Decidendi: The lease agreement and the dealership agreement are distinct agreements, independent of each other. Disputes under the lease agreement were referrable to the arbitration of the Managing Director of the Appellant who was to be the sole Arbitrator, and only if the Managing Director was unable or unwilling to act as sole Arbitrator the disputes were to be referred to the sole Arbitrator designated or nominated by the Managing Director in his place. If the disputes could not be referred to the Managing Director for any reason, the matter was not to be referred to arbitration at all. The Arbitral Tribunal appointed under the dealership agreement had no jurisdiction to adjudicate disputes pertaining to the lease agreement. The award insofar as it pertains to lease rent and lease period is patently beyond the scope of the competence of the Arbitrator.

Final Decision: Appeal allowed. Impugned judgment of High Court and impugned judgment of District Court insofar as the same pertains to lease rent and lease period are set aside. Impugned award dated 04.11.2010 is set aside to the extent that the Arbitrator has increased the monthly lease rent of the land in question from Rs.1750/-to Rs.10000/-with 10% increase after every three years w.e.f. the date of the termination of the dealership and to the extent the Arbitrator has reduced the period of lease from 29 years to 19 years and 11 months.