Indian Oil Corporation Ltd. Through Its Senior Manager vs M/S Shree Ganesh Petroleum Rajgurunagar Through Its Proprietor Mr. Laxman Dagdu Thite

,

Indira Banerjee, J",

Leave granted.,

These appeals are filed by Indian Oil Corporation Limited against a judgment and order dated 11th September 2015 passed by the High Court of,

Judicature at Bombay partly allowing Arbitration Appeal No.19 of 2013 filed by the Respondent and dismissing Arbitration Appeal No.39 of 2013 filed,

by the Appellant.,

The facts giving rise to these appeals are stated very briefly hereinafter.,

The Appellant took a plot of land, hereinafter referred to as “the said premisesâ€, on lease from the Respondent for a term of 29 years, pursuant",

to a deed of lease dated 20th September 2005 which was duly registered, in order to set up a retail outlet for sale of its petroleum products.",

The recital of the deed of lease, inter alia, records:-",

“1)…….The abovementioned Property is owned by SHRI. LAXMAN DAGDU THITTE. The said leased Property is more particularly,

described in the Schedule hereinbelow given together with the Structures and Building now standing thereon or that may be hereafter,

erected thereon by the LESSEE TO BOLD the premises hereby demised I hereinafter for the sake of brevity referred to as the (""DEMISED",

PREMISES"") unto the LESSEE for a term of 29 (TWENTY NINE years, commencing from the 20th day of SEPTEMEBR 2005 renewable and",

determinable as hereinafter provided yielding and paying thereof during the said term monthly and the proportionately for any part of a,

month the rent of Rs. 1750 /- (RUPEES ONE THOUSAND SEVEN HUNDRED AND FIFTY only) to be paid without any deduct on or before,

the 15th day of each and every calendar month.â€​,

The deed of lease, hereinafter referred to as “the lease agreementâ€​ contained, inter alia, the following terms and conditions:-",

“2) THE LESSEE DOTH HEREBY COVENANT WITH THE LESSOR/S AS FOLLOWS:,

i) Lease Rent will be Rs. 1750 /- (RUPEES ONE THOUSAND SEVEN HUNDRED AND FIFTY Only) per month.,

3) Lease Period will be 29 years from 15/04/2005 with further renewal by mutual consent.,

…,

4.) (e) To use or permit to be used the BUILDINGS AND SRUCTURES to be constructed on the DEMISED PREMISES for any and all lawful,

purposes as may be permitted by the Authorities from time to time including for storing, selling or otherwise carrying on business in Petrol,",

Diesel, Petroleum Products, oil and kindred motor Accessories, Petrol Filling Service and Lubricating Station etc.",

…,

(i) Subject to the LESSOR/S covenant hereinafter contained (and the Rights of the LESSE/S interest in the said DEMISED PREMISES as,

mentioned hereinafter), to deliver and yield up the DEMISED PREMISES at the expiration or sooner determination of the said term as",

herein provided together --- all the LESSOR/S fixtures and fittings in such state and condition as the same were in, when the possession was",

taken of by the LESSEE at the commencement of the said Term ( fair wear and tear and loss and/ or damage/s by fire, fluid, earthquake,",

tempest, lightning, violence of any army, mob or irresistible fierce or accident expected) . All additions, alteration, installations, (fittings and",

fixtures which during the said term or any renewal thereof belong to and revert to the LESSEE who shall be entitled to take away the same,

provided the DEMISED PREMISES are restored to their original state and conditions and the LESSOR/S will not have any right, title and",

interest thereon nor shall he/she/they be entitled to retain or appropriate any part thereof.,

…,

3) (b) That on the LESSEE paying the rent hereby reserved and observing and performing all the several Covenants, conditions and",

Agreements hereinbefore contained and on its part to be observed and performed the LESSEE shall peaceably hold and enjoy the,

DEMISED PREMISES during the said and any renewal/s thereof without any let or interruption by the LESSOR/S or by any persons,

lawfully or equitably claiming through, under or in trust for the LESSOR/S.",

…,

4)(a) ….. If the Rent hereby reserved or any part thereof shall be in arrears for a period of one year after becoming payable and after,

being demanded or if the LESSEE to be observed and performed their and in that event it shall be lawful for the LESSOR at any time,

thereafter to re-enter upon the said premises or any part thereof in the name of the whole and to take action to possess and enjoy as in all,

their former state and interest Provided always and it is hereby agreed and declared that the Power of Re -entry hereinabove contained,

shall not be exercised unless and until the LESSOR/S shall have first given to the LESSEES 90 days’ Notice in writing pointing out the,

Breach in respect of which the right to Re -Entry is exercised and the LESSEE shall have failed to remedy the breach within a reasonable,

period of not less than 90 days thereafter. ….,

…,

(e) The LESSEE shall be entitled to ASSIGN, TRANSFER, SUBLET, UNDERLET or part with the Possession of the DEMISED PREMISES or",

any part thereof to any person above name whomsoever it chooses without the consent of the LESSOR.,

(f) The LESSEE shall be entitled to appoint, remove, reappoint, change and substitute any dealers, agents, licensees and other authorized",

representatives on and in respect of the DEMISED PREMISES without the consent OF THE LESSOR.,

……,

(n) PROVIDED ALWAYS AND IT IS AGREED AND DECLARED that at the expiration of the said Term of 30 years this LEASE will be,

“AND WHEREAS the Corporation carries

the business of refining and sale of petroleum

products and more particularly of Motor Spirit (MS)

and High Speed Diesel Oil (HSD):",oRnecitals

AND WHEREAS the Corporation is t

Owner/Lessee/Tenant/licensee of a Plot of land and

is the Owner/Lessee/Tenant/licensee of the

superstructures thereon more particularly described

in the First Schedule hereunder written and of the

structures thereon (Hereinafter collectively referred

to as ""the Premises"") and has installed and/or is

about to install at and under the said premises the

apparatus and equipment described in the Second

Schedule hereto (hereinafter called ""the Outlet"")",h1e st Schedule

WHEREAS at the request of the Dealer, th

Corporation has agreed to appoint the Dealer as its

Dealer for the retail sale or supply at the said

premises of certain petroleum products on the terms

and conditions hereinafter contained.",e2 nd Schedule

2.This agreement shall remain in force for a Period

period of fifteen years from 15th day of Nov' 2006

and continue thereafter for successive periods of one

year each until determined by either party by giving

three months’ notice in writing to the other of its

intention to terminate this agreement and upon the

expiration of any such notice, this agreement shall

stand cancelled revoked, provided that nothing

contained in this clause and prejudice the rights of

either of the parties hereto to terminates this

agreement earlier in exercise of their rights under

any of the provisions contained in this agreement

and/or the rights of the Corporation to stop and/or

suspend and/or restrict the supplies to the Dealer

and/or the sales from the premises by the Dealer

pursuant to the provisions contained in that behalf in

this Agreement.",Period

The Corporation reserves the right without

reference to or consent of the Dealer to appoint one

or more additional Dealer/s in the same town/area or

location and such additional Dealer/s shall be entitled

to make sales of the products without any objection

from the Dealer and the Dealer shall not be entitled

to make any claim for remuneration, commission or

allowance whatsoever in respect of the sales made

by such additional Dealer/s and/or sales made by the

Corporation through such additional Dealer/s.",Corporation’s right to appoint additional Dealer/s

7.(a) The Dealer undertakes that he and his servants

and agents will observe and perform the provisions

of the Petroleum Act, 1934 and the Explosives Act,

1884 and any statutory re-enactment or modification

thereof for the time being force and all rules and

regulations made thereunder and all other

Government or Municipal Local or similar Acts

Laws, Regulations and bye-laws, as may be in force

from time to time relating to the Dealer's business in

the said products and to the storage, receipt and

transportation and other related matters as

contemplated under this Agreement and all

requisitions and requirements of all authorities

appointed under the foregoing enactment, rules or

regulations. If there is any violation on the part of the

Dealer, his servants and agents of the aforesaid

provisions or statutory rules and regulations, the

Corporation will have the absolute right to

discontinue the supplies and take any other action

including the termination of this Agreement as the

Corporation may at its absolute discretion think fit.

(b) The Dealer shall also be solely responsible for

any breach or contravention by himself, his

employees, agents of any Acts, rules, regulation or

bye -laws of the central and/or State Government

and/or Municipal Local and/ or other authorities as

may be applicable to the business including without

prejudice to the generality of the foregoing, the

concerned authorities respectively appointed under

the Petroleum Act, Payment of Wages Act, Shops

and Establishments Act, Factories Act and the

Workmen's compensation Act. The Explosives Act

1884 or any other Act or Statutory Rules,

Regulations or Bye-Laws made thereunder and/ o

applicable from time to time to the business of

storage and sale of products and servants, workmen

and persons engaged in connection therewith and the

corporation shall not be responsible in any manner

for any liabilities arising out of non-compliance by the

Dealer with the same.","The Petroleum Act

,

,

r

8(e) For the use of the said premises including the

construction thereon and outfit, the Dealer shall pay

to the Corporation a licence fee as may be fixed and

recovered or deducted in the manner as may be

decided by the Corporation, at its sole discretion and

without any previous notice to the Dealer shall from

time to time and at all times be entitled to increase or

revise or modify the said licence fee. …",Licence Fee

8(j) It is understood by the Dealer that the premises

mentioned in the First Schedule hereunder writer are

Public Premises within the meaning of the provisions

of the Public Premises (Eviction of Unauthorized

Occupants).",Dealer to safeguard Corporation right in the premises

It is specifically agreed and declared that the

basic condition of the grant of the Dealership rights

by the Corporation to the Dealer herein is that the

'Dealer hereby agreed, undertakes and covenant to

uplift and pay for the following minimum quantities of

the product per month as specified hereunder.",Minimum quantity/sale Targets

Notwithstanding anything to the contrary herein contained the Corporation shall

be at liberty upon breach by the Dealer of any covenant in this Agreement to top

and/or suspend forthwith all supplies to the Dealer and/ or sales from the premises

by the Dealer for such period or periods as the Corporation may think fit, and such

right of stoppage and/or suspension of supplies shall be in addition to and/or without

prejudice to any other right or remedy of the Corporation under this Agreement or

Law. For the purpose of this clause, the General Manager of the Corporation fo

the time being at Mumbai shall be the Sole Judge as to whether a breach of any

covenant of this agreement has been committed by the Dealer. The Dealer shall not

be entitled to claim any compensation or damage from the Corporation on account

of any such stoppage and/ or suspension of supplies.","Corpora(cid:37)on’s right

to suspend supplies

r

……The Corporation shall have the right to exercise at its discretion at any

time and from time to time quality control measures for products marketed by the

Corporation and lying with Dealer. The opinion of the General Manager of the

Corporation for the time being at Mumbai as to whether any product of the

corporation has been contaminated and/or adulterated shall be final and binding

upon the Dealer.","Product

Specifica(cid:37)on/Con -

amination/adulte ration

In the event of the said General Manager finding that the contamination and/or

adulteration of product has been due to any act or default or negligence of the

Dealer or of his servants or agents, the Corporation shall have the right, without

being bound to do so, to remove the contaminated/ adulterated product and to

destroy or otherwise deal with the same without making any payment therefor to

the Dealer and without prejudice to the Corporation a right to terminate this

Agreement forthwith.",Terms of payment

It shall be a paramount condition of this Agreement that the Dealer himself (if

he be an individual) or both partners of the Dealer firm (if the Dealer is a

partnership firm consisting of two partners only) or the majority of the partners of

the Dealer firm (if the Dealer is a firm consisting of more than two partners) or the

majority of the office bearers / elected members of the Dealer Ço- operative

Society (if the Dealer is a Co-operative Society) or the Managing/whole time

Directors (if the Dealer is a Private Limited Company), as thec ase may be shall

ordinarily be resident in India and shall take an active part in the management and

running of the Dealership and shall personally supervise the same and shall not

under any circumstances do so through any other person firm or body either as

'Benami' or through any 'Power of Attorney' or otherwise .",Working Dealer

The Dealer shall at all times faithfully, promptly and diligently observe and

perform and carry out at all times all directions, instructions, guidelines and orders

given or as may be given from time to time by the Corporation or its

representative(s) on safe practices and marketing discipline and/or for the proper

carrying on of the Dealership of the Corporation. The Dealer shall also scrupulously

observe and comply with all laws, rules, regulations and requisitions of the

Central/State Government and of all authorities appointed by them or either of them

including in particular the Chief Controller of Explosives, Government of Indi

and/or any other local authority with regard to the safe practices.","Dealer to comply with

Corporation’s

directives

a

The Corporation by its officers, representatives or servants will be entitled at all

times to enter upon the premises and inspect the management of the retail outlet by

the Dealer in all respects and the Dealer shall be bound to render all assistance and

give all information to the Corporation and its duly authorized representatives in that

behalf and produce to the Corporation and/or its duly authorized representatives in

that behalf whenever required to do so Invoices/Cash Memos for all purchases and

receipts for all payments which it is the Dealer's duly to make whether under the

terms of this Agreement or otherwise.","Corpora(cid:37)on’s right

to inspect management

of dealership

Notwithstanding anything to the contrary herein contained, the Corporation shall

be at liberty at its entire discretion to terminate this Agreement forthwith upon or at

any time after the happening of any of the following events namely:-

a) If the Dealer shall commit a breach or default of any of the terms, conditions,

covenants and stipulations contained in this Agreement,…

…",Forthwith Termination

61.(a) Any dispute or difference of any nature whatsoever, any claim, cross -claim,

counter-claim or set-off 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 Director (Marketing) of the Corporation who

may either himself act as the Arbitrator or nominate some other officer of the

Corporation to act as the Arbitrator. 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.â€​",Arbitration

(i) If the Dealer shall deliberately contaminate or temper with the quality of any of the Corporation's products.â€​,

On a plain reading of the aforesaid agreement, it is clear as noon day that it has no connection whatsoever with the lease agreement.",

Both the agreements are independent of each other. The appellant was a dealer under the lessee, that is, the Corporation. The dealership is",

liable to be cancelled on many a ground. In case there is a termination, dealership is bound to be cancelled and at that juncture, if the lease",

deed is treated to have been terminated along with the dealership, it will lead to a situation which does not flow from the interpretation of",

the instruments. The dealership agreement has been terminated because of the decision rendered by this Court in Mukund Swarup Mishra,

[(2007) 2 SCC 536]. The consequence of cancellation of the dealership is a sequitur of the judgment. The inevitable consequence of that is,

that the appellant has to vacate the premises and the Corporation has the liberty to operate either independently or through another dealer.,

The appellant cannot be allowed to cause obstruction or create an impediment. The submission that the appellant entered into the lease,

agreement at a monthly rent of Rs 10,000 as it was given the dealership is a mercurial plea, only to be noted to be rejected. The dealership",

was availed of as has been held by this Court in an inapposite manner. In such a situation, consequences are to be faced by the",

appellant.â€​,

It appears that during a routine inspection on 17th April 2008 certain irregularities were noticed with regard to functioning of the retail outlet of,

which the Respondent had been appointed dealer.,

By a letter dated 17th April 2008, the Appellant directed the Respondent not to carry on further sales from the said outlet. Thereafter, a notice",

dated 18th April 2008 was issued to the Respondent calling upon the Respondent to show cause why action should not be taken against the,

Respondent for irregularities which amounted to violation of the Marketing Discipline Guidelines (MDG) 2005 issued by the Ministry of Petroleum and,

Natural Gas, Government of India and Public Sector Oil Marketing Companies.",

The Appellant also suspended the sale and supplies to the retail outlet run by the Respondent. By a letter dated 21st April 2008, the Respondent",

replied to the show cause notice admitting the irregularities alleged.,

By a letter dated 20th August 2008, the Appellant terminated the dealership of the Respondent, called upon the Respondent to vacate the retail",

outlet and hand over peaceful possession thereof to the Appellant and also to settle accounts with the Appellant.,

The Respondent appealed to the Appellate Authority of the Appellant against the order of termination dated 20th August 2008. By an order dated,

17th July 2009, the Appellate Authority of the Appellant dismissed the appeal of the Respondent.",

By a letter dated 24th August 2009, the Respondent invoked the arbitration clause in the dealership agreement and requested the Director",

(Marketing) of the Appellant to appoint an Arbitrator.,

The Director (Marketing) of the Appellant appointed Mr. B.L Parihar as Arbitrator in terms of the dealership agreement, by an order dated 9th",

November 2009.,

The Respondent filed its Statement of Claims before the learned Arbitrator challenging the order of termination of the dealership agreement. In,

addition to the prayer for setting aside of the order of termination of the dealership agreement and the prayer for damages, the Respondent made an",

alternative prayer for amendment of the lease agreement to enhance the monthly rent of the said premises to Rs.35,000/- with a 20% increase after",

every three years.,

The Appellant filed its Written Statement to the Statement of Claim. In its Written Statement, the Appellant contended: -",

“2. The Claimant alternatively claimed a sum of Rs.45,28,000/-with interest at the rate of Rs.15% per annum and further claimed",

increase in lease rent to Rs.35,000/- per month with 20% increase after every three years. The said alternative prayers of the Claimant are",

outside the ambit of this arbitration proceedings and hence not maintainable and are liable to be rejected.,

xxx xxx xxx,

… The rent was fixed after the Claimant had negotiated with the Committee of Officials of the Respondent and had agreed to the amount,

of rent. As such the Rent was fixed mutually between the parties. The Respondent further submits that the Claimant has been regularly,

accepting the monthly rent of Rs.1750/- from 2005 till date and has never raised any objection to the amount of the said Rent till filing of,

this Statement of Claim. As such the Claimant has raised this issue of monthly rent as purely an afterthought in this Statement of Claim.â€​,

xxx xxx xxx,

The alternative prayers of the Claimant at para 34(b)(I)(II) are not within the ambit of the Arbitration proceedings and hence not,

maintainable and not admitted by the Respondent. The Claimant has no ground whatsoever to call upon the Arbitrator to Order the,

Respondent to pay to the Claimant the sum of Rs.45,28,000/-with interest at the rate of 15% per annum from the date of filing the claim till",

the payment by the Claimant. Without challenging the registered Lease Deed executed by the Claimant the Claimant cannot seek Order of,

the Hon’ble Arbitrator to modify the terms of the Lease Deed. Therefore the alternative prayers of the Claimant are also be liable to be,

rejected in toto.,

The main issues which arose for determination before the learned Arbitrator were:-,

“….,

Whether the Claimant committed breaches of MDG Guideline and Dealership Agreement dated 15.11.2006 and whether the claimant is,

entitled for restoration?,

Whether the Termination letter dated 20.08.2009 is legal, valid and subsisting?",

Whether the Claimant proves that the Claimant is entitled for Order/Decree against the Respondent for the sum of Rs.45,28,000/-?",

Whether this Arbitral Tribunal has jurisdiction to increase monthly Lease Rent from Rs.1750/- per month to Rs.35,000/- per month with",

20% increase after every three years?,

Whether the Claimant proves that the Claimant is entitled for increase in monthly lease rent from Rs.1,750/- per month to Rs.35,000/- per",

month with 20% increase after every three years?â€​,

The learned Arbitrator made and published an award dated 04.11.2010 holding :-,

“FINDINGS AS TO ISSUE NO.2, 3 & 4",

…I hold that the Claimant has committed the breaches of terms and conditions of the Dealership Agreement dated 15.11.2006 and MDG,

2001 and therefore Termination Letter dated 20.08.2008 issued by the Respondent is legal & valid. I therefore find that the Claimant,

therefore is not entitled for any restoration.,

FINDINGS AS TO ISSUE NO.5,

I find that the Claimant has made investment of Rs.45,28,000/-whereas the Respondent has also made investment of Rs.57,00,000/- for",

construction of Retail Outlet and allied expenditures. The Claimant has committed the serious irregularities which are not at all permitted as,

per the said Dealership agreement & MDG and provision penalties are also made thereof, which has caused the serious loss of goodwill",

and reputation to the Respondent Company. Due to the serious irregularities, the Claimant’s dealership was terminated. The Claimant",

therefore is not entitled for sum of Rs.45,28,000/- and interest thereon.",

FINDINGS AS TO ISSUE NO.6 & 7,

The Claimant had raised an Appeal before Executive Director (Retail Sales) of the Respondent to revoke the termination of Dealership on,

humanitarian ground since lease rent of the land is too low to survive. The Claimant submitted that the Claimant offered and agreed to let,

out his Land on Long Lease for monthly rent of Rs.1,750/- only because the Respondent agreed to allot the dealership of petrol pump as his",

plot of land and the monthly income from the said dealership was assured.,

I have perused the Government Valuation Report of the Land of the Claimant (Exhibit “Oâ€) and instance of one Mr. Bajirao Jadhav,

relied upon the Claimant (Exhibit “Pâ€) to prove the market rate of the vicinity of the Land of the Claimant. Both the documents are,

registered documents. The Lease Agreements executed by Mr. Bajirao Jadhav and the Claimant are altogether different with different terms,

and conditions and negotiations between the parties. The Claimant and Respondent are bound by terms and conditions of Lease Agreement,

dated 20.09.2005 and this Arbitral Tribunal cannot go beyond the Lease Agreement dated 20.09.2005 have provided and determined the,

rates of rent and increases in the rent and the same are binding upon the parties. I find that since the Dealership of petrol pump is already,

terminated there shall be no income of the dealership to the claimant other than the lease rent which is too low to survive and claimant had,

agreed to let out his Land on Long Lease for monthly rent of Rs.1,750/- only because the Respondent agreed to allot the dealership of petrol",

pump as his plot of land therefore the Claimant is entitled to get some reasonable increase in the monthly lease rent of the said land for,

survival but increase not to the tune of Rs.35000/- from Rs.1750/- as submitted by the Claimant.,

Award,

The Termination of dealership order dated 20.08.2008 is valid, legal and binding upon the Claimant and the Respondent. The Claimant is",

not entitled for restoration of dealership.,

The claimant is not entitled, for claim of Rs.45,28,000/- and interest thereon.",

The monthly lease rent of the said land to be increased 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 period of lease deed to be kept as per period mentioned in the advertisement published in the,

News Paper on 6.7.2005.,

With the above award, I have concluded the arbitration proceedings and published this award on 4.11.2010.â€​",

The Appellant filed an application being Civil Misc. Application No. 115 of 2011 under Section 34 of the Arbitration and Conciliation Act, 1996,",

hereinafter referred to as “the 1996 Act†for setting aside of the said award in the Court of the District Judge, Pune. The Respondent filed its",

cross objection to the impugned award and also filed a counter claim in the Court of the District Judge, Pune.",

The counter claim filed by the Respondent was apparently misconceived. There could be no question of any counter claim to an application for,

setting aside of an award.,

Section 5 of the 1996 Act provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by",

Part I of the 1996 Act, no judicial authority shall intervene except where so provided in Part I.",

Section 34 in Part I of the 1996 Act as it is stood at the material time provided as follows:,

Application for setting aside arbitral award.â€"(1) Recourse to a Court against an arbitral award may be made only by an application",

for setting aside such award in accordance with sub-section (2) and sub-section (3) .,

(2) An arbitral award may be set aside by the Court only ifâ€",

(a) the party making the application furnishes proof that,

(i) a party was under some incapacity; or,

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the",

law for the time being in force; or,

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was,

otherwise unable to present his case; or,

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains",

decisions on matters beyond the scope of the submission to arbitration:,

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral",

award which contains decisions on matters not submitted to arbitration may be set aside; or,

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such",

agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in",

accordance with this Part; or,

(b) the Court finds thatâ€",

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or",

(ii) the arbitral award is in conflict with the public policy of India.,

[Explanation 1.â€"For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,â€"",

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or,

(ii) it is in contravention with the fundamental policy of Indian law; or,

(iii) it is in conflict with the most basic notions of morality or justice.,

Explanation 2.â€"For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall",

not entail a review on the merits of the dispute.],

[(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if",

the court finds that the award is vitiated by patent illegality appearing on the face of the award:,

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of,

evidence.]â€​,

As observed above, 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.,

In the instant case, the Respondent invoked the Arbitration Clause under the Dealership Agreement and approached the Director (Marketing) of",

the Appellant who appointed Mr. B.L. Parihar as the sole Arbitrator. The Arbitrator, Mr. B.L. Parihar, nominated by the Director (Marketing) of the",

Appellant had no authority and/or jurisdiction to adjudicate any dispute pertaining to the lease agreement.,

The Arbitral Award is liable to be set aside in so far as the same deals with disputes with regard to the Lease Agreement which are not,

contemplated by the Arbitration Clause in the dealership agreement and/or in other words, do not fall within the terms of the submission to Arbitration.",

The Arbitral award is thus liable to be set aside under Section 34(2)(a)(iv) of the 1996 Act. The decision enhancing the lease rent is patently beyond,

the scope of the submission to arbitration. Moreover, the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the",

lease agreement dated 20th September, 2005.",

By a judgment and order dated 29th January 2013, the District Judge-3, Pune 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†with the observation that the term of agreement if wholly prejudicial or capable of causing,

grave injustice to one of the parties, could certainly be overlooked not only by Court of Justice, but also by the Arbitrator. The District Judge held that",

the learned Arbitrator had rightly enhanced the rent to Rs. 10,000/- with 10% increase after every three years. However, the learned Court held that it",

was not within the province of the Arbitrator to decrease the lease period to 19 years and 11 months as per the advertisement given in the,

newspapers.,

Both the Respondent and Appellant appealed to the Bombay High Court under Section 37 of the 1996 Act challenging the judgment and order of,

the District Judge-3, Pune.",

By a judgment and order dated 11th September 2015, the High Court partly allowed the Arbitration Appeal No.19 of 2013 filed by the Respondent",

and dismissed Arbitration Appeal No.39 of 2013 filed by the Appellant observing that there was no scope for the District Court to interfere with the,

impugned award. The High Court held:-,

“10. Coming to the interference by the appellate court with the award on the dispute under the lease agreement, it is patent from the",

impugned order that the interference with the same was beyond the provision of Section 34 of the Arbitration Act. The learned Judge on the,

one hand permitted enhancement of the lease rent but denied the reduction of the lease period. The learned Judge lost sight of the fact that,

the claimant had contended before the learned Arbitrator that he was compelled by the respondent to agree for the lease of 29 years and 11,

months, though the advertisement permitted him dealership for only 19 years and 11 months. It is nobody’s case that the lease rent of",

Rs.1,750/- per month was at the market rate at the relevant time. It is obvious that the claimant had agreed for the extended period of the",

lease only because the same was coupled with the dealership agreement. In the circumstances, there was no scope for the District Court to",

interfere with the impugned award. To that extent, the appeal of the claimant must be allowed and the directions contained in the impugned",

order at paragraph “2†be set aside. Hence, Arbitration Appeal No.39 of 2013 is dismissed. Arbitration Appeal No.19 of 2013 is partly",

allowed. The direction at para 2 of the impugned order is set aside.â€​,

In the High Court, learned senior counsel appearing for the Appellant had submitted that adjudication of the dispute under the lease agreement was",

beyond the jurisdiction of the learned Arbitrator. It was pointed out that the lease agreement provided for a specified Arbitrator that is the Managing,

Director of the Appellant or any other person designated or nominated by the Managing Director. The Arbitrator in the instant case, Mr. B.L. Parihar,",

had been appointed pursuant to the Dealership Agreement by the Director (Marketing) of the Appellant. The High Court rejected the aforesaid,

contention with the observation:-,

“9. Perusal of the record however shows that no such contention was taken before the Arbitrator as also in the application filed under,

Section 34 of the Arbitration Act. Therefore, the appellant cannot be allowed to raise it for the first time before this court. Because it would",

mean that the claimant has accepted Mr. B.L. Parihar as the Arbitrator for the dispute under the lease agreement.â€​,

In so far as disputes with regard to lease rent and/or any other conditions of the deed of lease were concerned, the High Court proceeded on the",

patently erroneous basis 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, ignoring the specific averments made by the Appellant in its counter statement, which have been",

extracted hereinabove.,

In its counter statement, the Appellant had specifically averred that the alternate prayer of the Respondent claiming increase in lease rent to",

Rs.35,000/- per month with 20% increase in every three years was outside the ambit of the arbitration proceedings. The Appellant also asserted",

categorically that, without challenging the registered lease deed executed by it, the Respondent could not seek an order of the Arbitrator, modifying the",

terms of the lease deed.,

The High Court also apparently overlooked the fact that the jurisdiction of the Arbitral Tribunal to increase the monthly lease rent from Rs.1750/-,

per month to Rs.35,000/- per month was specifically in issue before the learned Arbitrator (Issue No.6) as evident from the impugned award.",

As held by this Court in Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, cited by Mr. Prasenjit Keswani, learned counsel",

appearing on behalf of the Respondent, Section 34 in conjunction with Section 5 of the 1996 Act makes it clear that an arbitral award that is governed",

by Part I of the 1996 Act, can only be set aside on grounds mentioned under Sections 34(2) and (3) of the said Act and not otherwise. The Court",

considering an application for setting aside an award, under Section 34 of the 1996 Act cannot look into the merits of the award except when the",

award is in conflict with the public policy of India as provided in Section 34(2)(b)(ii) of the 1996 Act.,

In Associate Builders (supra), this Court held that an award could be said to against the public policy of India in, inter alia, the following",

circumstances: -,

(i) When an award is, on its face, in patent violation of a statutory provision.",

(ii) When the Arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute.,

(iii) When an award is in violation of the principles of natural justice.,

(iv) When an award is unreasonable or perverse.,

(v) When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the",

1996 Act.,

(vi) When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court.",

An Arbitral Tribunal being a creature of contract, is bound to act in terms of the contract under which it is constituted. An award can be said to be",

patently illegal where the Arbitral Tribunal has failed to act in terms of the contract or has ignored the specific terms of a contract.,

However, a distinction has to be drawn between failure to act in terms of a contract and an erroneous interpretation of the terms of a contract. An",

Arbitral Tribunal is entitled to interpret the terms and conditions of a contract, while adjudicating a dispute. An error in interpretation of a contract in a",

case where there is valid and lawful submission of arbitral disputes to an Arbitral Tribunal is an error within jurisdiction.,

The Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily interfere with interpretation made by,

the Arbitral Tribunal of a contractual provision, unless such interpretation is patently unreasonable or perverse. Where a contractual provision is",

ambiguous or is capable of being interpreted in more ways than one, the Court cannot interfere with the arbitral award, only because the Court is of",

the opinion that another possible interpretation would have been a better one.,

In Associate Builders (supra), this Court held that an award ignoring the terms of a contract would not be in public interest. In the instant case, the",

award in respect of the lease rent and the lease term is in patent disregard of the terms and conditions of the lease agreement and thus against public,

policy. Furthermore, in Associate Builders (supra) the jurisdiction of the Arbitral Tribunal to adjudicate a dispute itself was not in issue. The Court was",

dealing with the circumstances in which a Court could look into the merits of an award.,

In this case, as observed above, the impugned award insofar as it pertains to lease rent and lease period is patently beyond the scope of the",

competence of the Arbitrator appointed in terms of the dealership agreement by the Director (Marketing) of the Appellant.,

The lease agreement which was in force for a period of 29 years with effect from 15th April, 2005 specifically provided for monthly lease rent of",

Rs.1750 per month for the said plot of land on which the retail outlet had been set up. It is well settled 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.,

In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131, this Court",

held:,

“76. However, when it comes to the public policy of India, argument based upon “most basic notions of justiceâ€, it is clear that this",

ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental,

notions or principles of justice. It can be seen that the formula that was applied by the agreement continued to be applied till February 2013,

â€" in short, it is not correct to say that the formula under the agreement could not be applied in view of the Ministry's change in the base",

indices from 1993-1994 to 2004-2005. Further, in order to apply a linking factor, a Circular, unilaterally issued by one party, cannot",

possibly bind the other party to the agreement without that other party's consent. Indeed, the Circular itself expressly stipulates that it",

cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the Circular is acceptable to them. We,

have seen how the appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and,

cannot apply. This being the case, it is clear that the majority award has created a new contract for the parties by applying the said",

unilateral Circular and by substituting a workable formula under the agreement by another formula dehors the agreement. This being the,

case, a fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be",

foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party.",

Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the",

conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation",

in the present case. Under no circumstance can any court interfere with an arbitral award on the ground that justice has not been done in,

the opinion of the Court. That would be an entry into the merits of the dispute which, as we have seen, is contrary to the ethos of Section 34",

of the 1996 Act, as has been noted earlier in this judgment.â€​",

In PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others (2021) SCC Online SC 508 this,

Court referred to and relied upon SSangyong Engineering and Construction Company Limited (supra) and held:,

“87. As such, as held by this Court in Ssangyong Engineering and Construction Company Limited (supra), the fundamental principle of",

justice has been breached, namely, that a unilateral addition or alteration of a contract has been foisted upon an unwilling party. This",

Court has further held that a party to the Agreement cannot be made liable to perform something for which it has not entered into a,

contract. In our view, re-writing a contract for the parties would be breach of fundamental principles of justice entitling a Court to interfere",

since such case would be one which shocks the conscience of the Court and as such, would fall in the exceptional category.â€​",

In PSA SICAL Terminals Pvt. Ltd. (supra) this Court clearly held that the role of the Arbitrator was to arbitrate within the terms of the contract.,

He had no power apart from what the parties had given him under the contract. If he has travelled beyond the contract, he would be acting without",

jurisdiction.,

In PSA SICAL Terminals Pvt. Ltd. (supra) this Court referred to and relied upon the earlier judgment of this Court in MD. Army Welfare,

Housing Organization v. Sumangal Service (P) Ltd. (2004) 9 SCC 619 and held that an Arbitral Tribunal is not a court of law. It cannot exercise its,

power ex debito justitiae.,

In Satyanarayana Construction Company v. Union of India and Others (2011) 15 SCC 101, a Bench of this Court of coordinate strength held that",

once a rate had been fixed in a contract, it was not open to the Arbitrator to rewrite the terms of the contract and award a higher rate. Where an",

Arbitrator had in effect rewritten the contract and awarded a rate, higher than that agreed in the contract, the High Court was held not to commit any",

error in setting aside the award.,

There can be no dispute with the proposition of law enunciated by this Court in Central Inland Water Transport Corporation Limited and Another,

v. Brojo Nath Ganguly and Another (1986) 3 SCC 156, cited by Mr. Keswani. The judgment, however, has no application in this case.",

In Brojo Nath Ganguly (supra), this Court held that a term in a contract of employment as also service rules of a Government company providing",

for termination of services of permanent employees without assigning reasons, on three months’ notice, or pay in lieu thereof was unconscionable,",

arbitrary and opposed to public policy. This Court was not concerned with any lease agreement or any dealership agreement in the aforesaid case.,

In this case, there is no finding by the Arbitral Tribunal that any condition of the dealership agreement was unconscionable and the Arbitral",

Tribunal has not interfered with termination of the dealership agreement.,

The Appellant and the Respondent entered into the lease agreement in this case with their eyes open. The Respondent had the option not to lease,

out its property to the Appellant. The situation of an owner of property, executing a lease agreement in respect of his property cannot be equated with",

a contract of employment executed by and between an employee and a mighty employer, where the employee has little option but to accept the terms",

and conditions offered by the employer.,

It is well settled that a judgment of a Court is precedent for the issue of law which is raised and decided. Words and phrases used in a judgment,

cannot be read in isolation, out of context. To quote the distinguished author V. Sudhish Pai “Judgments and observations in judgments are not to be",

read as Euclid’s theorems or as provisions of statute. Judicial utterances/pronouncements are in the setting of the facts of a particular case. To,

interpret words and provisions of a statute it may become necessary for judges to embark upon lengthy discussions, but such discussion is meant to",

explain not define. Judges interpret statutes, their words are not be interpreted as statutes. Thus, precedents are not to be read as statutes.â€",

[Constitutional Supremacy-A Revisit, Essays on Constitutionalism, Rule of Law & Constitutional Adjudication by Mr. V. Sudhish Pai]",

For the reasons discussed above, the appeal is allowed. The impugned judgment of High Court is set aside. The impugned judgment of the District",

Court insofar as the same pertains to lease rent and lease period is also set aside.,

The 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.,