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Judgment
Manmohan, J
Present appeal has been filed under Section 37 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Actâ€) challenging the
order dated 4th March, 2021 passed by the learned District Judge (Commercial Court â€" 02), Patiala House Court, New Delhi whereby the
Appellant’s petition under Section 34 of the Act was dismissed. Appellant also challenges the arbitral award dated 21stJuly, 2018 whereby the
Appellant’s claim was dismissed and the Show Cause Notice dated 06th February, 2015 issued by the respondent-IOC was held to be valid.
FACTS OF THE CASE
The Appellant, a proprietary concern of Sh. Rajendra Kumar, is engaged in the business of running a petrol and diesel pump on the National
Highway no.76, Udaipur Road, Chittorgarh, Rajasthan as granted by the respondentâ€" Indian Oil Corporation Ltd. Originally, the Appellant was the
owner of the land from where the petrol and diesel pump was being run. The respondent appointed the Appellant as a dealer vide Letter of
Appointment dated 4th January, 1991.
Subsequently, the Appellant sold the land to the respondent and a fresh ‘Dealership Agreement’ dated 1st February, 1997 was executed
whereby the Appellant was appointed as the authorised dealer of the respondent to operate the petrol pump on the National Highway no.76, Udaipur
Road, Chittorgarh, Rajasthan as a licensee of the respondent for a period of five years and thereafter for a period of one year until otherwise
determined by either party.
On 30th October 2014, a surprise inspection was carried out by the respondent and an inspection and analysis report was prepared, pursuant to
which the respondents addressed a communication dated 11th November, 2014 to the Appellant stating therein that during the inspection, the wire
connecting the Mechanical Totaliser to the Computer Processing Unit [CPU] of one of the Dispensing Units was found broken with a black coloured
tape put on it to join the two broken ends of the wire. It was further alleged that the Mechanical Totaliser was found to be non-functional inasmuch as
even though product was being dispensed from the nozzle of said Dispensing Unit, the readings in the totaliser remained static/stationary at 2833318.
The respondent sought an explanation from the Appellant which was duly replied to vide communication dated 24th November, 2014.
Subsequently, a Show Cause Notice dated 6th February, 2015 was issued by the respondent to the Appellant regarding cancellation of the
dealership, which was challenged before the Rajasthan Courts and eventually, the matter reached the Apex Court. The Supreme Court vide order
dated 31st March, 2017 in SLP (Civil) No.4590-4591 of 2016, referred the parties to arbitration before the Delhi International Arbitration Center.
The Learned Arbitrator vide impugned award dated 21st July 2018, dismissed all the claims preferred by the Appellant and upheld the Show Cause
Notice dated 06th February 2015 issued by the respondent. The relevant portion of the impugned Award is reproduced hereinbelow:-
“63. Prima facie the onus was on the claimant to show as to how the tapes came to be applied to the wires connected the C.P.U. and the
mechanical totalizer. In this regard, one thing is clear that the Claimant has changed his stand more than once which makes his conduct
suspect and impels the Arbitral Tribunal to draw an adverse inference against him. To start with when the claimant filed reply to the notice
dated 11.11.2014, this is what he said:
“7. It is true that the cable is broken and the tape is put on it and the pump has been installed at my place. So prima facie I am, guilty.
However, I assure you no tampering has ever been done by me or by my staff at any point of time. Had it been done there would have been
difference in the sale. My fault is this much that I never inspected the panel by opening it out and since the sale was matching always, my
attention could not be drawn to any type of irregularity. Due to this mistake I am feeling very ashamed. Due to this I have good reputation
in the company and I now believe that my reputation has been considerably damaged. I can understand this. I am feeling very hurt due to
this immoral act and I do not have words to explain this.
This human error has been committed due to my negligence and I did not check the panel by opening it and did not inform the company
in time. I am guilty of the same. I am requesting you with folded hands that I may be pardoned, and the above allegation will be cancelled
and permission is granted for starting the sale with that pump on my petrol pump.
Yours faithfully,
Sd/-
(illegible)
Proprietor.â€
A perusal of the reply shows an admission on the part of the claimant that it was he alone was responsible either in breaking of the
wires and wrapping the tapes or he was negligent in informing the respondent about the same.
The Claimant realizing that the breaking of the seal is a critical irregularity and can result in cancellation of his dealership, started
changing his stand. He now takes the plea that he was ignorant of the tape and at the time when the lower panel was opened, the hinges
panel were broken and the official of the inspection team did not hold the panel firmly because of which the panel fell on the wires and the
wires got snapped with the C.P.U.
In a given case, it can be so, but the question arises for consideration is whether such a thing is possible for the wires in the instant
case. The answer to this question is emphatic “Noâ€. The reason for this is that even if it is assumed that the wires got snapped as
suggested by the claimant, even then how would the wires get taped with the black tape. They would remain naked wire without any tape.
Therefore, this is outrightly a false plea. Yet, while deposing as CW1, the Claimant has changed the stand which does not add to his
credibility in any manner.
The next question which arises for consideration is that what is the effect of putting of the black tape.
Regulation 8.2 makes tampering of seals of the dispensing unit as critical irregularity which can result in cancellation or termination.
There is no doubt that the claimant has not been able to give a coherent, cogent and reasonable explanation and therefore, it is to be
treated as critical irregularity. ……
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The defence which has been set up by the Respondent that even if the wires have been taken to have been snapped, still and Claimant
did not make any profit or dispense with the petroleum products over and above what was recorded manually in the sales register and what
is recorded in the electronic totaliser and therefore, there was every reason to give the benefit of doubt to the Claimant and not to cancel
the dealership.
I am not convinced with this line of argument of the Claimant for the simple reason that these marketing guidelines are to be observed
both in letter and spirit as they are essentially framed for the purpose of protecting the consumer who are in no way knowing the dynamics
of the method of functioning of the dispensing unit. It is also immaterial that the Claimant has made any profit or not. Suffice it would be
here to mention that there was a violation of critical marketing guidelines done by the Respondent for which rightfully a show cause notice
has been issued before terminating the licence of the Claimant. The plea taken by the Claimant that a humanitarian view be taken or for a
lenient view be taken and a chance be given to the Claimant to run the unit.
In my view, taking a lenient view of the conditions would be putting premium on the delinquent behaviour of the claimant.
xxxx xxxx xxxx xxxx
I, therefore, find that the claim which has been filed by the Claimant is false, frivolous and vexatious and accordingly, the claim of the
Claimant for quashing the Show Cause Notices dated 6th of February 2018 and removal of the seal of the dispensing unit dated 30.10.2014
and directing the Respondent to replace the dispensing unit at the dealership of the Claimant is totally uncalled and cannot be allowed in
the eyes of law.
Accordingly, I feel that the show cause notice dated 06.02.2014 was issued validly to the Claimant for his having put the wires on the
cover portion of the dispenser unit was not intimated to the Respondent. Further, relief of the Claimant for de-sealing the unit and
permitting to operate the pump is untenable in law, and, therefore, all the three claims are dismissed.â€
The said arbitral award was challenged before the learned District Judge, vide OMP (COMM.) No. 44 of 2018 which was dismissed vide
impugned order dated 4th March 2021. The relevant portion of the impugned order dated 4th March, 2021 passed by the learned District Judge is
reproduced hereinbelow:-
“36. The impugned award was passed by former Learned and Hon'ble Judge, High Court of Delhi as Sole Arbitrator whereas the
findings were given, based on appreciation of facts, evidences and law after giving all reasonable opportunities to the parties to lead their
evidence. Not only the reasonings of Learned Sole Arbitrator are logical but all the material and evidences were taken note of by the
Learned Sole Arbitrator. The Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that
of the Learned Sole Arbitrator, as per the law laid in the precedents, elicited herein above. Cogent grounds, sufficient reasons have been
assigned by the Learned Sole Arbitrator in reaching the just conclusion and no error of Jaw or misconduct is apparent on the face of the
record. This Court cannot reappraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts
arrived at by Learned Sole Arbitrator. The impugned award does not suffer from vice of irrationality and perversity. No error is apparent in
respect of the impugned award. I do not find any contradiction in the observations and findings given by Learned Sole Arbitrator. The
award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out. None of the
grounds raised by the petitioner attract Section 34 of the Act.â€
ARGUMENTS ON BEHALF OF THE APPELLANT
Mr. Anil Airi, learned senior counsel for the Appellant stated that the learned District Judge failed to appreciate that there was an error apparent on
the face of record in the arbitral proceedings inasmuch as the burden of proof regarding the tampering had been erroneously shifted upon the
Appellant. According to him, the burden of proof was upon the respondent to conclusively show that the Appellant was guilty of tampering with
Dispensing Unit.
He contended that deliberate tampering had to be shown in order to prove ‘critical irregularity’. He pointed out that Dispensing Unit had been
inspected numerous times earlier and no irregularity had been found.
Learned senior counsel for the Appellant emphasised that the Mechanical Totaliser stopped working at the time of inspection as the panel had
fallen after its hinges broke when it was being opened by the respondents. According to him, due to the said mishandling by the respondent, the wires
connecting the Mechanical Totaliser to the CPU snapped. He pointed out that Dispensing Unit was old and had been previously installed at another
filling station and the reason for the wire snapping was attributable to the depreciated quality of Dispensing Unit and respondent’s mishandling the
Dispensing Unit during the inspection.
He stated that reading of the Mechanical Totaliser duly matched with the reading of the Electronic Totaliser, which was functional, and also
matched with the Daily Sales Register. He further stated that even if the Mechanical Totaliser was faulty, the Electronic Totaliser was working
properly and therefore, there was no irregularity in the dispensing of product from the Dispensing Unit.
He contended that when Dispensing Unit was in automated/electronic mode, it could not be tampered with as the data was fed live to the server
that could be checked by the respondents. Therefore, according to him, the readings of the mechanical totaliser were irrelevant and could be
disregarded as the readings of the Electronic Totaliser were available.
ARGUMENTS ON BEHALF OF THE RESPONDENT-IOCL
Per contra, Ms. Mala Narayan, learned counsel for the respondent stated that the present appeal ought to be rejected as it was primarily
challenging the factual findings rendered by the learned Arbitrator. She submitted that as the arbitrator is the sole judge of the quality and quantity of
the evidence and once it was found that the arbitrator’s approach was neither arbitrary nor capricious, no interference was called for. In support
of her submission, she relied upon the Supreme Court judgments in Associate Builders Vs. Delhi Development Authority AIR 2015 SC 620 and
McDermott International Inc. Vs. Burn Standard Co. Ltd. (2006) 11 SCC 181.
Learned counsel for the respondent stated that the Appellant had laid emphasis on new documents (Annexure No. 1 and 2 of the written
submissions on behalf of the Appellant), produced for the first time before this Court, describing the automation system presently being used. She
pointed out that the said documents pertained to the automation systems installed at the much later stage i.e. seventh or eighth phase of automation,
whereas the automation system installed at the Retail Outlet of the Appellant was admittedly of the first phase/stage, which was full of glitches and
was often non-functional. She pointed out that this was the reason why the said documents were never produced either before the learned Arbitrator
or before the learned District Judge. Consequently, according to her, no cognizance could be taken of the said documents at this stage. She lastly
stated that the learned District Judge had rightfully dismissed the Section 34 petition of the Appellant.
COURT’S REASONING
ONCE AN ARBITRAL AWARD HAS BEEN CONFIRMED IN AN APPLICATION FILED UNDER SECTION 34 OF THE ACT, THE APPELLATE
COURT MUST BE EXTREMELY CAUTIOUS IN DISTURBING CONCURRENT FINDINGS OF THE FACT AND LAW AS THEY ARE
ORDINARILY NOT AMENABLE TO INTERFERENCE UNDER SECTION 37 OF THE ACT.
Having heard the learned counsel for the parties, we are of the opinion that it is essential to first outline the scope of this Court’s jurisdiction
under Section 37 of the Act. The Supreme Court in MMTC Ltd. vs. Vedanta Ltd. (2019) 4 SCC 163 while discussing the scope of interference with
an arbitral award has held as under:-
“11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award
and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India.
As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian
public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice
or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian
law†would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of
natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness.
Furthermore, “patent illegality†itself has been held to mean contravention of the substantive law of India, contravention of the 1996
Act, and contravention of the terms of the contract.
It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such
interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are
arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of
the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate
Builders v. DDA (2015) 3 SCC 49. Also see ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation (2006) 4 SCC 445 and McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181).
xxx xxx xxx xxx
As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake
an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has
not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34
and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.â€
Consequently, while exercising appellate jurisdiction under Section 37 of the Act, this Court has similar restrictions as prescribed under Section 34
of the Act i.e. this Court can only ascertain whether the exercise of power by the learned District Judge under Section 34 of the Act was lawful or
not. Also, once an arbitral award has been confirmed in an application filed under Section 34 of the Act, the Appellate Court must be extremely
cautious in disturbing concurrent findings of the fact and law as they are ordinarily not amenable to interference under Section 37 of the Act. Further,
it is settled law that the Appellate Court should generally not interfere unless it is apparent that the perversity of the arbitral award goes to the root of
the case, without a possibility of alternative interpretation that might sustain the award.
THE CONTENTION THAT THE WIRE OF THE MECHANICAL TOTALIZER HAD SNAPPED DUE TO RESPONDENT’S MISHANDLING
IS CONTRARY TO THE VIDEO OF THE INSPECTION [COMPREHENSIVE CD; FILED VIDE DIARY NUMBER 334593] IN FACT, THERE
WAS A BLACK TAPE ATTACHED TO THE WIRES, WHICH WAS NOT EXPLAINED BY THE APPELLANT. CONSEQUENTLY, THIS COURT
IS IN AGREEMENT WITH THE FINDINGS OF THE LEARNED DISTRICT JUDGE THAT THE LEARNED ARBITRATOR HAD RIGHTLY
CONSIDERED THE EVIDENCE ON RECORD TO CONCLUDE THAT THE TAMPERING OF DISPENSING UNIT, AS EVIDENT FROM THE
BLACK TAPE, WOULD AMOUNT TO ‘CRITICAL IRREGULARITY’.
In the present case, the Appellant has challenged the arbitral award and the order passed by the learned District Judge primarily on the ground that
the alleged irregularities committed by the Appellant had not been proved conclusively and that the wire of the mechanical totalizer had snapped due to
respondent’s mishandling.
This Court finds that the said contention is contrary to facts and evidence on record inasmuch as the video of the inspection [Comprehensive CD;
filed vide diary number 334593] placed on record by the respondent proves that there was no mishandling of the panel of the Dispensing Unit. In fact,
there was a black tape attached to the wires, which was not explained by the Appellant before the learned Arbitrator despite being given due
opportunity. Consequently, this Court is in agreement with the finding of the learned District judge that the learned Arbitrator had rightly considered
the evidence on record to conclude that the tampering of Dispensing Unit, as evident from the black tape, would amount to ‘critical irregularity’.
THE APPELLANT’S NEW PLEA, TO RELY ON THE READINGS OF THE ELECTRONIC TOTALIZER, CAN BE DISREGARDED AS THE
FACT THAT THE ELECTRONIC TOTALIZER WAS FULL OF GLITCHES WAS NOT DISPUTED AND THE READINGS OF MECHANICAL
TOTALISER WERE ALONE TAKEN AND CONSIDERED BY THE RESPONDENT FOR STOCK VERIFICATION. FURTHER, IN ORDER TO
SUBSTANTIATE ITS ARGUMENT, THE APPELLANT HAD PLACED RELIANCE ON NEW DOCUMENTS THAT HAD NEITHER BEEN
PRODUCED BEFORE THE LEARNED ARBITRATOR NOR BEFORE THE LEARNED DISTRICT JUDGE.
This Court is also of the view that the Appellant’s new plea regarding automated/electronic totalizer can be disregarded as the fact that the
electronic totalizer was full of glitches was not disputed. In fact, the Officer of the respondent had very clearly stated in his evidence that only the
readings of the mechanical totalizer were relevant for stock verification. The relevant portion of evidence of respondent’s Officer -Mr. M.E.
Zuberi/RW-1 is as under:-
“With respect to the contention of the Claimant that the Respondent Corporation has not provided any guidelines or source to indicate
that the Respondent is required to consider the readings from a Mechanical Totaliser and not Electronic Totaliser, the Deponent submits the
following, which substantiates the said contention of the Respondent Corporation:
i. the Respondent Corporation has never ever instructed the Claimant to record the readings of the Electronic Totaliser and/or to maintain a
DSR or Electronic Totaliser;
ii. the Respondent Corporation has never conducted even a single inspection of the Claimant’s RO on the basis of the Electronic
Totaliser readings.â€
Even the Appellant, in his statement of claim as also in his Rejoinder to the Statement of Defence had stated, “on 30.1.2014 before the officials
of the Respondent visited the petrol and diesel pump or station of the Claimant for surprise inspection the reading of the mechanical totaliser had
already been entered in the Daily Sale Register………..†Consequently, admitting that the readings of mechanical totaliser were taken and
considered by the Respondent for stock verification and only the readings of mechanical totaliser were to be recorded in the daily stock register which
had to be manually maintained by the dealer.
Moreover, reliance placed upon the readings of the automated/electronic totaliser is misplaced for the simple reason that the automation system at
Petitioner’s Retail Outlet was admittedly among the first few automation systems and was full of glitches. In this regard, it was admitted by the
CW-1 â€" Rajinder Kumar Patni (dealer) that, “it is correct that our petrol pump was the first one to have been automated. It is correct that our
pump was automated in the Phase I Category while as presently Phase VI Category is on. It is correct that automation system installed at our pump
was faced with glitches and we had complained to the Respondents number of timesâ€
Further, in his evidence, the officer of the Respondent Mr. M.E. Zuberi/RW-1 had stated that “since admittedly, the Automation system which
was used and installed at the Claimant’s RO at the relevant point of time, was in its initial phase i.e. Phase-I, it admittedly suffered from several
glitches, on account of which, stock verification by the Respondent Corporation by using the electronic totaliser was not possibleâ€. Further, it was
stated by RW-1 in his cross examination as under:-
“Q.6 Is it correct that when the unit is on automation mode all the data is recorded and updated/uploaded on a server maintained by the
Corporation on a daily basis?
Ans. Not necessarily as at times certain data is not transferred in the automation server/system even if the unit is on automation mode. The
reason for this are technical glitches especially on account of the fact that the system which was doing this job is categorized as Phase 1
system and pertained to initial period. (Vol.) We keep on improving the system and at presently phase VI is in operation.â€
It is pertinent to mention that in order to substantiate its argument, the Appellant had placed reliance on new documents that had neither been
produced before the learned arbitrator nor before the learned District Judge. This Court is of the view that the veracity of the said documents cannot
be examined at this stage as it is settled law that an Appellate Court should not travel outside the record of the lower court and cannot take any
evidence in appeal.
Keeping in view the aforesaid, this Court is of the opinion that the Appellant has failed to demonstrate that the findings of the learned Arbitrator as
well as the learned District Judge are ex-facie perverse.
Consequently, this Court is in agreement with the impugned order of the learned District Judge confirming the impugned arbitral award.
Accordingly, the present appeal, being devoid of merits, is dismissed along with pending applications.