A.V. Yousef v. CH. Divisional Retail Sales Manager, Indian Oil Corporation Limited

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE V.CHITAMBARESH** **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI** **TUESDAY ,THE 29TH DAY OF JANUARY 2019 / 9TH MAGHA, 1940** **Arb.A.No. 18 of 2014** **AGAINST THE ORDER IN OPARB 497/2013 of DISTRICT COURT,ERNAKULAM DATED 16-01-2014** ## **APPELLANT/PETITIONER:** **A.V.YOUSUF AGED 54 YEARS S/O. HAMZA HAJI, ARAKKAL VEETATH, PALUVAI.P.O., THAIKKAD VIA, CHAVAKKAD, THRISSUR.** **BY ADVS. SRI.N.M.MADHU SMT.C.S.RAJANI SRI.P.P.HARRIS** ## **RESPONDENTS/RESPONDENT:** **CH.DIVISIONAL RETAIL SALES MANAGER INDIAN OIL CORPORATION LIMITED, COCHIN DIVISIONAL OFFICE, PANAMPILLY AVENUE, KOCHI-682036.** **BY ADVS. SRI.C.S.DIAS SRI.P.GOPAKUMARAN NAIR** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 23.01.2019, THE COURT ON 29.01.2019 DELIVERED THE FOLLOWING:** Arb.A.No.18/2014 2 ## **V.CHITAMBARESH &** ## **R.NARAYANA PISHARADI, JJ.** ************************** Arb.Appeal No.18 of 2014 ---------------------------------------------Dated this the 29[th] day of January, 2019 ## **JUDGMENT** ## **R.Narayana Pisharadi, J** The legality of the award passed by an arbitrator regarding termination of the appointment of the appellant as a dealer of the petroleum products of the Indian Oil Corporation is the issue for consideration in this appeal. 2. The appellant was appointed as a dealer of the petroleum products of the Indian Oil Corporation (hereinafter referred to as 'the Corporation'), the respondent herein, as per the agreement executed between him and the Corporation on 25.04.2001. 3. A surprise inspection was conducted by the Joint Industry Team at the outlet of the appellant on 13.03.2010. Arb.A.No.18/2014 3 They found certain irregularities in conducting the outlet. The inspection team collected samples of various petroleum products from the outlet. 4. The Corporation issued a notice dated 31.03.2010 to the appellant alleging that motor spirit samples taken from his outlet failed to meet the specifications and also that there were variations in stock details of the motor spirit and high speed diesel. The Corporation alleged that the appellant violated the terms of the agreement and asked him to show cause why action shall not be taken against him. 5. The appellant gave a reply to the notice alleging that the procedure adopted for collecting samples was not proper. The samples were re-tested at the request of the appellant. Ultimately, after issuing a notice to the appellant, on 26.07.2010, the Corporation terminated the dealership of the appellant on the ground that he had adulterated the petroleum products at the outlet and that there were stock variations beyond permissible limits. Arb.A.No.18/2014 4 6. The appellant challenged the termination of dealership before this Court by filing W.P.(C) No.36381 of 2010. This Court directed the appellant to invoke the arbitration clause in the agreement to resolve the dispute. Accordingly, the dispute was referred to the arbitrator appointed by the Corporation. 7. During the arbitral proceedings, the appellant and an officer of the Corporation were examined. Exts.A1 to A18 and C1 and C2 documents were also marked. 8. The arbitrator passed an award upholding termination of the dealership of the appellant. The arbitrator also found that the appellant is entitled to get an amount of Rs.88,991.27/- from the Corporation as the price of the lubricants taken from his outlet. 9. The appellant challenged the award by filing application under Section 34(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') in the District Court, Ernakulam. The learned Additional District Judge meticulously considered the contentions raised by the appellant Arb.A.No.18/2014 5 and dismissed the application filed by him. The aforesaid order is challenged in this appeal. 10. We have heard the learned counsel for the appellant and also the respondent. We have also perused the available records. 11. In the application filed under Section 34(1) of the Act, the appellant had challenged the arbitral award on various grounds. He had challenged the factual findings made by the arbitrator. He also alleged that the arbitrator, being an officer of the Corporation, was biased against him. The appellant further alleged in the application filed under Section 34(1) of the Act that termination of his dealership was made without adhering to the principles of natural justice. 12. The allegation that the arbitrator, being an officer of the Corporation, was biased against the appellant is raised in the appeal also. 13. Clause 67 of the agreement executed between the appellant and the Corporation contains the arbitration clause. It Arb.A.No.18/2014 6 clearly lays down that the sole arbitrator shall be an officer of the Corporation. No person, other than an officer of the Corporation named in the agreement, could have been appointed as the arbitrator. 14. The amended provisions of the Act came into force on 23[rd] October, 2015. The arbitration proceedings in the case had come to an end long before that date. Therefore, the statutory provisions that would govern the present controversy are those which were in force before the amendment of the Act. 15. Section 13(2) of the Act provides that a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in subsection (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. Section 12(3) of the Act states that an arbitrator may be challenged only if – (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the Arb.A.No.18/2014 7 qualifications agreed to by the parties. 16. In the instant case, the appellant has no case that he made any challenge to the arbitrator as provided under Section 13(2) of the Act. 17. When the appellant entered into the dealership agreement with the Corporation, he very well knew the terms of the contract including the arbitration clause. He was aware of the fact that the person who would be appointed as arbitrator would be an officer of the Corporation. He submitted to the jurisdiction of the arbitrator. He participated in the proceedings before the arbitrator without any demur or objection. He had also not challenged the appointment of the arbitrator as provided under Section 13(2) of the Act. In such circumstances, the appellant cannot contend that the arbitrator appointed was not an independent person. 18. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his Arb.A.No.18/2014 8 part. There can be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject of contract or if he is a direct subordinate to the officer whose decision is the subject matter of the dispute (See **Aravali Power Company v. M/s Era Infra Engineering Limited : AIR 2017 SC 4450** ). In the instant case, the appellant has no case that the arbitrator is an officer of the Corporation who holds such position. 19. It is quite common for governments, statutory corporations and public sector undertakings while entering into contracts, to provide for settlement of disputes by arbitration, and further provide that the arbitrator will be one of its senior officers. If a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a statutory corporation or public sector undertaking, containing an arbitration agreement providing that one of its senior officers shall be the arbitrator, he cannot subsequently turn around and Arb.A.No.18/2014 9 contend that he is agreeable for settlement of disputes by arbitration, but not by the named arbitrator who is an employee of the other party (See **Indian Oil Corporation v. M/s Raja Transport (P) Ltd : (2009) 8 SCC 520** ). 20. In **Ace Pipeline Contract Private Ltd. v. Bharat Petroleum Corporation Ltd : AIR 2007 SC 1764,** the agreement between the parties contained similar arbitration clause as in the present case. Dealing with bias of the arbitrator appointed pursuant to such agreement, the Apex Court held as follows: _“Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation that if any person of the respondent - BPCL is appointed as arbitrator he will not be impartial or objective. However, if the appellant feels that the arbitrator has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an application under Section 34 of the Act to set aside the award on the ground that arbitrator acted_ Arb.A.No.18/2014 10 _with bias or malice in law or fact”._ 21 **.** Apart from the fact that the arbitrator was an officer employed by the Corporation, there is no basis for the allegation that the arbitrator acted with bias. Merely for the reason that the arbitrator was an officer of the Corporation, bias on his part could not be presumed or inferred. The appellant could not substantiate that the award is vitiated on account of bias on the part of the arbitrator. 22. The appellant has raised an allegation in the application filed under Section 34(1) of the Act that sufficient opportunity was not given to him by the arbitrator to adduce evidence and present his case. There is no merit in this contention. The arbitrator had examined the appellant. Oral as well as documentary evidence was adduced by the appellant before the arbitrator. He was given every opportunity to effectively participate in the arbitration proceedings. 23. The appellant would contend that the arbitrator did not consider his plea that he was not given an opportunity of personal hearing by the Corporation before termination of the Arb.A.No.18/2014 11 dealership agreement. The appellant would contend that termination of the dealership was made without adhering to the principles of natural justice. There is no merit in this contention also. The appellant has no case that the agreement executed between him and the Corporation provided that before termination of the agreement he shall be given an opportunity of personal hearing. The dealership of the appellant was terminated by the Corporation only after issuing a notice to show cause against the proposed action. The arbitrator has taken into account this fact. 24. The appellant has got another plea that the results of the tests conducted in respect of the samples taken from his outlet were not consistent. The arbitrator as well as the learned Additional District Judge has considered this aspect in detail. The samples were tested three times. The samples did not meet the specifications especially in random octane number test. The factual findings made by the arbitrator on the basis of the evidence adduced before him cannot be assailed in an application Arb.A.No.18/2014 12 under Section 34(1) of the Act. 25. During the arbitral proceedings, the appellant could not meet the allegation regarding deficit in stock of the various petroleum products. There was deficit of 8754 litres of motor spirit, 12858 litres of high speed diesel and 3994 litres of extra mile products. The appellant could not substantiate the plea that variation in the stock of motor spirit was the result of defect in the alignment of the tank. 26. The appellant has challenged the factual findings made by the arbitrator in the application filed by him under Section 34(1) of the Act. The learned Additional District Judge has rightly held that he could not interfere with such factual findings made by the arbitrator. The learned Additional District Judge has rightly observed that in an application filed under Section 34(1) of the Act, the court cannot go into the correctness of the finding of facts made by the arbitrator and sit in appeal over the findings of the arbitrator. Unreasonableness of an award is not a matter for the court to consider unless the award is per se preposterous Arb.A.No.18/2014 13 or absurd (See **Pathrose v. State of Kerala : (2010) 12 SCC 100** ). Where reasons have been given by the arbitrator in making the award, the court cannot examine the reasonableness of the reasons. While considering the challenge to an award, the court cannot sit in appeal over the award. The court cannot reappreciate the evidence for the purpose of finding, whether on the facts and circumstances, the award in question could have been made (See **P.R.Shah,Shares and Stock Brocker Private Limited v. M/s B.H.H.Securities Private Limited : AIR 2012 SC 1866** ). In the anxiety to render justice to the party to arbitration, the court cannot reappraise the evidence intrinsically with a close scrutiny and find that the conclusion drawn by the arbitrator on facts, according to the understanding of the court, is erroneous. Such exercise of power, which can be made by an appellate court with power to reverse findings of facts, is alien to the scope and ambit of challenge to an award under the Act. Only when errors of finding of facts having a bearing on the dispute are patent and is easily demonstrable without the necessity of Arb.A.No.18/2014 14 carefully weighing the evidence, interference with the award is possible on the ground of patent illegality. Errors which do not appear on the face of the award cannot be a ground for the court to set aside the award. Award can be set aside on the ground that it is in conflict with the public policy only when the illegality goes to the root of the matter. 27. Clause 56(i) of the agreement executed between the appellant and the Corporation provides that the Corporation shall be at liberty to terminate the agreement if the dealer deliberately contaminates or tampers with the quality of any of the products with the Corporation. It is also to be noted that as per Clause (39) of the agreement it is the duty of the dealer to keep and maintain the records of sales as prescribed by the Corporation. As per Clause (26) of the agreement, the dealer is responsible for all loss, contamination, damage or shortage of or to the products except in cases where the Corporation is satisfied that loss arose due to leakage of underground tanks or pipes which the dealer could not reasonably have discovered and of which the dealer Arb.A.No.18/2014 15 gave immediate notice to the Corporation on discovery. As per clause (4) of the agreement, the Corporation has the right to terminate the agreement on any breach of the terms thereof. 28. In our opinion, it is evident from the award made by the arbitrator that he has considered all the specific issues raised by the parties in the arbitration proceedings and came to his finding after giving cogent reasons. As noticed earlier, reasonableness of the reasons stated by the arbitrator cannot be gone into in an application filed under Section 34(1) of the Act. The learned Additional District Judge has rightly dismissed the application filed by the appellant. Consequently, the appeal is dismissed. No costs. ## (sd/-) ## **V.CHITAMBARESH, JUDGE** (sd/-) ## **R.NARAYANA PISHARADI, JUDGE** jsr/24/01/2019