Award Liable To Be Set Aside If Arbitral Tribunal Rewrites Contract Or Ignores Determinative Clauses: Calcutta High Court

“An Arbitral Tribunal does not enjoy any latitude in re-writing the contract, ignoring determinative clauses, or supplanting contractual stipulations on the notions of equity, fairness, constitutional morality or public law principles. Any departure from the express terms of the contract or from substantive Indian law constitutes a jurisdictional transgression and falls within the available grounds warranting setting aside of the award.”, the court observed.

Justice Ravi Krishan Kapur in an order dated December 23, while allowing a petition filed by Indian Oil Corporation Ltd (IOC), set aside an arbitral award which had directed restoration of a terminated petrol dealership and awarded damages to Tapas Kumar Das. The court held the tribunal had acted in patent disregard of the settled law.

The dispute arose from a dealership agreement executed on March 8, 2004, under which IOC appointed the dealer to operate a retail outlet in Purba Medinipur, West Bengal. The agreement also contained a clause that it could be terminated by either party by giving notice, making it determinable in nature. The outlet was inspected by a joint industry team on February 9, 2011, which tested product samples. The test results revealed the samples failed to meet prescribed specifications, indicating adulteration at the outlet level.

After the company terminated the agreement, the dealer invoked arbitration. The sole arbitrator not only awarded damages but also directed continuation and operation of the outlet. The company argued the tribunal's direction effectively granted specific performance of the agreement by going beyond the contract itself.

The court found the arbitrator's approach to be fundamentally flawed. It relied on the Specific Relief Act to hold that a determinable contract cannot be specifically enforced. It said that the party may only claim damages on the basis of proof. The court reiterated that this position has been consistently reaffirmed by the Supreme Court, particularly in cases relating to oil company dealership agreements.

The court further observed that the tribunal had travelled outside the contract by importing constitutional principles into a private commercial dispute between the parties. It held that the arbitral tribunals are mandatorily bound by Section 28(3) of the Arbitration & Conciliation Act, which requires decisions to be rendered in accordance with terms of the contract. The court observed:

“The Arbitrator has failed to adhere to the express terms of the contract and has granted relief in disregard thereof, particularly by directing specific performance of a determinable dealership agreement by importing considerations alien to the contract. The issue being not whether the law has been erroneously applied or evidence improperly appreciated, but also whether the Arbitrator has complied with the mandatory obligation under section 28(3) of the Act, which obliges the Arbitral Tribunal to decide strictly in accordance with the terms of the contract.”

The court held the arbitrator's finding which absolved the dealer of responsibility for adulteration was contrary to the evidence on record. It said the test results clearly established adulteration at the outlet level and not during transportation.

The court concluded that the award suffered from “patent illegality” and was liable to be set aside for disregarding contractual terms.

Case Title: Indian Oil Corporation Ltd vs Tapas Kumar Das

Case Number: AP-COM/160/2024

For Petitioner: Sr. Advocate Jishnu Saha with Advocates Manwendra Singh Yadav, Saswati Chatterjee, Satabdi Naskar (Kundu)

For Respondent: Advocates Debjyoti Datta, Subhashis Bandopadhyay