1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.3533 OF 2023

(Arising out of SLP (C) No.5698 OF 2021)

INDIAN OIL CORPORATION LTD. AND ORS. …APPELLANT(S)

VERSUS

M/S. SATHYANARAYANA SERVICE

STATION & ANR …RESPONDENT(S)

WITH

CIVIL APPEAL No.3534 OF 2023

(Arising out of SLP (C)No.5591 OF 2021)

M.P. PARVATHI …APPELLANT(S)

VERSUS

M/S. SATHYANARANA SERVICE

STATION AND ORS. …RESPONDENT(S)

J U D G M E N T

K.M. JOSEPH, J.

1. Leave granted.

2. In Civil Appeal arising out of SLP(C) 5698 OF

2021, the appellants are the Indian Oil Corporation

Ltd., (hereinafter referred to as “IOC”, for short),

Digitally signed by

Jagdish Kumar

Date: 2023.05.09

17:59:58 IST

Reason:

Signature Not Verified 2023 INSC 507

2

the Chief Divisional Retail Sales Manager of the

first appellant, Bangalore and the Chief Divisional

Retail Sales Manager of the Mangalore Division. The

second respondent in the said appeal is one Smt. M.P.

Parvati, referred to as new dealer, who is the

appellant in the other appeal, namely, civil Appeal

arising out of SLP(C) 5591 OF 2021.

THE FACTS

3. On 31.10.2003, IOC entered into petrol/hsd pump

dealer agreement with the first respondent. Clause

(3) of the agreement read as follows:

“(3) The Agreement shall remain in force for

fifteen year from day of 13th Oct 2003 and

continue thereafter for successive periods of

five year each until determined by either

party by giving three months notice in

writing to the other of its intention to

termination this agreement and upon the

expiration of any such notice this Agreement

and the Licence granted as aforesaid shall

stand cancelled and revoked but without

prejudice to such termination provided that

nothing contained in this clause shall to the

rights of either pa rty against the other in

respect of any matter or thing antecedent to

such termination Prov ided that nothing

contained in this clause shall to such

prejudice the rights of the Corporation to

terminate this Agreement earlier on the

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happening of the events mentioned in Clause

56 of this Agreement. ”

4. On 25.09.2006, the first respondent addressed the

following communication to the second appellant :

“Date: - 25-09-2006

To,

The Chief Divisional Retail Sales Manager

Indian Oil Corporation Limited

Marketing Division, Bangalore Divisional

Office,

Indian Oil Bhavan # 29,

P. Kalinga Rao Road, (Mission Road)

Bangalore - 560027.

Dear sir,

Sub : With drawl from R.O. Dealership

Ref: Your Letter No. BD0/242 dated 23rd Oct,

2003

With reference to the above subject we are very

grateful to you and IOC family members for

giving us support and cooperation for all these

years for running the R.O.

I would like to bring to your kind notice, that

we have shifted to Bangalore for our children's

education. Hence, we are not able to look after

the R.O.

Hence, kindly withdraw from R.O. dealership and

appoint new R.O. dealers before three months as

per our agreement Dt: 31

st

Oct. 2003.

Hope you will consider our humble request and

do the needful.

4

Thanking you,

Yours faithfully,

For SRI SATYANARAYANA SWAMY SERVICE STATION

(P.S. SURESH) (JYOTI SURESH)

Partner Partner

CC To : The Sales Officer Mysore

//TRUE TYPED COPY//”

5. It is not in dispute that on 30.09.2006 there was

a physical interaction in the course of which IOC

insisted that the request of the first respondent be

notarised. There is also no dispute that a notarised

version of letter dated 25.09.2006 was received on

16.11.2006. It was apparently notari sed earlier on

3.10.2006. A reply was sent to the same dated

22.11.2006 by the second appellant. It reads as

follows:

“November 22, 2006

Regd. Post A.O.

Shri. P. S. Suresh & Smt Jyothi Suresh

Partners

Sri. Sathyanarayanaswamy Service Station

Mysore -Bantwal Road

Periyapatna 5 71107

MYSORE DISTRICT

5

Dear sir,

SUBJECT : Resignation from Dealership

This has reference to the notarized letter

dated 3rd October 2006 received by our office

on 16th November 2006 informing us of your

intention to ret ire from our retail outlet

dealership.

This notarized letter sent by you, with

reference to the recognition letter sent by us

to you vide reference BDO : 242 dated 23.

10.2003 along with the dealership agreement

recognizing both of you as the dealers of our

'A' site retail outlet at periyapatna, run by

you under the name and style M/s.

Sathyanarayanaswamy Service Station.

As stated in your letter, we have taken note of

your intention to resign from our dealership.

We request you to continue op eration till we

make an alternative arrangement.

We thank you for your association with our

organization and wish you both all the very

best in your future endeavours.

Thanking you,

Yours faithfully,

For INDIAN OIL CORPORATION LIMITED

Samson Chacko

Chief Divisional Retail Sales Manager

//TRUE TYPED COPY//”

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6. Next, we must notice letter dated 11.12.2006 on

behalf of the partners of the first respondent to the

second appellant. It reads as follows:

“Date: -11-12-2006

To,

The Chief Divisional Retail Sales Manager

Indian Oil Corporation Limited

Marketing Division, Bangalore Divisional

Office,

Indian Oil Bhavan # 29,

P. Kalinga Rao Road, (Mission Road)

Bangalore.

Dear sir,

I would like to bring to your kind Notice, that

I have sent the R.O. Dealership withdrawal

letter (Notarized) due to unavoidable

circumstances.

But I want to take back the withdrawal from the

Dealership.

I am extremely sorry for the trouble and

inconvenience caused.

But I will assure you sir, that in the future

we will run the outlet smoothly without giving

you any problems.

Hope you will consider my humble request and do

the needful.

Thanking you,

Yours faithfully

CC :- To The Sales Officer,

7

Mysore,

For Satyanarayana Swamy Service Station

PARTNERS

//TRUE TYPED COPY//”

7. On 21.12.2006, we find the following

communication addressed by the second appellant on

behalf of the IOC to the first respondent:

“BY RPAD

December 21

st

, 2006

MIS. Sri Satyanarayanaswamy Service Station

Indian Oil Dealer

Mysore - Bantwal Road

Periyapatna - 571107.

Mysore Dist.

Dear Sir,

Sub : Withdrawal of resignation

We have for reference your letter on the

subject dated 18/12/2006, withdrawing your

resignation from our Dealership.

You had initially tendered your resignation on

25/09/2006. This was once again confirmed with

you by the undersigned on 30/09/2006. On your

confirmation, you were asked to submit a

notarized resignation letter. Thereafter, you

withdrew your resignation, and once again on

16.11.2006, you submitted a resignation letter

duly notarized on 03/l 0/2006.

On receipt of the above, we sent you a letter

by RP AD accepting your resignation.

Thereafter, you visited our office on

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22/11/2016 along with your father, wherein you

once again upheld your decision to resign as

you were presently settled at Bangalore and you

could not concentrate in your RO at

Periyapatna. This was despite your father's

opposition to your point of view.

Based on your notarized resignation and

personal confirmations, we have obtained our

Management's approval for accepting your

resignation. We regret to inform you that your

request to withdraw the resignation cannot be

considered at this stage, due to the above-

mentioned reasons.

Thanking you,

Yours faithfully,

For INDIAN OIL CORPORATION LIMITED

(Samson Chacko)

Chief Divisional Retail Sales Manager

//TRUE TYPED COPY//”

8. IOC took possession of the Petroleum Outlet on

23.12.2006. Thereafter, the new dealer came to be

awarded the dealership on 28.12.2006. An appeal was

carried by the first respondent before the General

Manager of the IOC, Karnataka. The appeal came to be

dismissed on 02.04.2007. This led to matter being

referred to arbitration . The Sole Arbitrator by

award dated 15.01.2009 found inter alia that

“inasmuch as the IOC and its officers had

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communicated the acceptance of the claimant’s

resignation of the dealership vide their letter dated

22.11.2006, which brings the contract between both

parties to an end, their rejection of the claimant ’s

subsequent request dated 11.12. 2006 for withdrawing

the resignation was in accordance with law” . In

regard to the question as to whether the action of

the first respondent in withdrawing the resignation

from the dealership by letter dated 11.12.2006 was in

accordance with law, it was f ound that acceptance of

the resignation having been conveyed on 22.11.2006,

the action of the first respondent in withdrawing was

not in accordance with law. In regard to the issue

whether the first respondent had withdrawn the notice

of resignation within the time as prescribed in

clause (3) of the Memorandum of Agreement, i t was

found as follows:

“Clause 3 of the Memorandum of agreement does

not specifically mention a time limit for

withdrawal of resignation. The notice period

of 3 months mentioned in the contract is only

the outer limit by which time the party who

gets the notice have to make their alternate

arrangements. At any time during the notice

period, the recipient party can convey

10

acceptance thereby bringing the contract

between the partie s to an end. Moreover,

Section 5 of the Indian Contracts Act states

that a proposal may be revoked at any time

before the communication of it's acceptance,

but not afterwards. Since the Respondents

have communicated their acceptance of the

resignation of the Claimant vide their letter

dated 22.11.2006, the Claimant's subsequent

letter dated 11.12.2006 requesting for

withdrawing the resignation letter is not in

accordance with law. Hence the issue as to

whether the Claimants have withdrawn their

resignation within the time limit has no

relevance.”

(Emphasis supplied)

9. .The arbitrator further found that the Letter of

Intent being issued in favour of the new dealer was

not flawed. Answering all other issues which need

not detain us against the first respondent, the award

was passed. The first respondent knocked at the

doors of the Principal and Sessions Judge, Mysore

under Section 34 of Arbitration & Conciliation Act,

1996 (hereinafter referred to as “the Act”) . The

arbitration suit under Section 34 of the Act was

dismissed.

10. By the impugned order in an appeal carried by the

first respondent, the High Court has set aside the

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award as also the order passed by the court under

Section 34. Still further, the High Court directed

that the first respondent shall be restored the

dealership within three months from the date of th e

receipt of the certified copy of the judgment failing

which the first respondent was held entitled to seek

execution of the judgment and also seek necessary

damages from IOC and its officers.

11. It is this judgment which has led to the filing

of the two appeals. Apart from the IOC and its

officers, impugning the order of the High Court the

new dealer, namely, M.P. Parvati has filed the other

appeal.

12. We heard Shri Vik ram Mehta, learned counsel

appearing on behalf of the appeal filed by the IOC.

We also heard Shri Devadatt Kamath, learned senior

counsel appearing on behalf of the new Dealer. Next,

we heard Shri Shailash Madiyal, learned counsel on

behalf of the first respondent.

13. Shri Vikram Mehta, learned counsel for the IOC

would submit that the High Court has overstepped the

well settled limits set by a catena of decisions in

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the matter of overturning an arbitration award. He

took us to the correspondence and also the conduct of

the first respondent to contend that the first

respondent wanted to termi nate the contract as is

self-evident by sending the notice dated 25.09.2006 .

Upon being told that the communication must be

notarised, it was got notarised on 03.10.2006 and it

was received by the second appellant on 16.11.2006.

The same was accepted on 1 8.11.2006. The Arbitrator

has entered findings on the above lines. It is a

plausible view. The District Judge in proceedings

under Section 34 had found the award invulnerable.

Therefore, even on a different view being possible,

the High Court acted illegally in interfering with

the award. He would, in fact, submit that the view

taken by the arbitrator was in fact, the right view.

The expression of words conveying the best wishes for

the partners of the first respondent apart from the

penultimate paragraph in letter 18.11.2006 is harped

upon. The High Court, it is pointed out, has

proceeded to apply principles of law which may not be

apposite in the context. He would submit that the

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findings of the arbitrator cannot certainly be

described as perverse. He would also submit that the

High Court has clearly acted illegally in not merely

setting aside the award but even proceeding to modify

the award which is wholly beyond its power. In other

words, he would point out the direction by the High

Court to restore the dealership to the first

respondent as being palpably illegal.

14. Shri Devadatt Kamat, learned senior counsel

appearing on behalf of the new dealer would submit

that the conduct and correspondence resorted to by

the first respondent would reveal that it was

carefully thought out . In other words, it is not a

case where there was any coercion or other vitiating

element which drove the partners to invoke clause

(3). He would refer to the judgment of this Court in

Ssangyong Engineering & Construction Company Limited

v. National Highway Authority of India (NHAI)

1

,

Therein, he emphasised the following statement:

1

(2019) 15 SCC 131

14

“40. The change made in Section 28(3) by the

Amendment Act really follows what is stated

in paras 42.3 to 45 in Associate Builders

[Associate Builders v. DDA, (2015) 3 SCC 49 :

(2015) 2 SCC (Civ) 204] , namely, that the

construction of the terms of a contract is

primarily for an arbitrator to decide, unless

the arbitrator construes the contract in a

manner that no fair-minded or reasonable

person would; in short, that the arbitrator's

view is not even a possible view to take.

Also, if the arbitrator wanders outside the

contract and deals with matters not allotted

to him, he commits an error of jurisdiction.

This ground of challenge will now fall within

the new ground added under Section 34(2 -A).”

15. Next, he drew our attention to the judgment of

this Court in Punjab State Civil Supplies Corporation

Ltd. and Another Versus Ramesh Kumar and Company and

Others

2

.

“12. In the present case, the High Court was

required to determine as to whether the

District Judge had acted contrary to the

provisions of Section 34 of the 1996 Act in

rejecting the challenge to the arbitral

award. Apart from its failure to do so, the

High Court went one step further while

reversing the judgment of the District Judge

in decreeing the claim in its entirety. This

exercise was clearly impermissible. The

arbitrator was entitled to draw relevant

findings of fact on the basis of the evidence

which was adduced by the parties. This was

exactly what was done in the arbitral award.

2

2021 SCC ONLINE SC 1056

15

The award of the arbitrator was challenged

unsuccessfully by the respondents under

Section 34 of the 1996 Act. In this backdrop,

there was no basis in law for the High Court

to interfere with the judgment of the

District Judge and, as we have noted earlier,

to even go a step further by decreeing the

claim.”

16. He also submitted that the purport of clause (3)

of the agreement was to give a benefit to the party

to whom the communication is sent terminating the

contract. A construction of the contract by the

Arbitrator is not open to interference on the score

that the court finds the same incorrect. Yet this is

precisely what has been done in the impugned

judgment. He would point out that, in fact, the new

dealer is the wife of a Martyr being the widow of a

slain soldier.

17. Shri Shailash Madiyal, learned counsel sought to

counter the appellants in the following manner: He

would submit that actually, clause (3) of the

agreement in question clearly contemplated that the

dealership was to remain sacrosanct for a period of

15 years. This is subject only to an earlier

termination as contemplated in clause (56). Clause

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(56), it is pointed out, provided for termination by

IOC on certain acts and omissions by the dealer. He

further contended that it is only after the expiry of

first 15 years that the parties contemplated

extension of the contract by 5 years at a time. The

total period of the contract is 15 years to begin

with and, by virtue of subsequent extension of 5

years each, could go upto 30 years. However, the

facility of termination of the dealership by giving a

three months’ notice, in writing, was impermissible

during the first 15 years. He would submit that such

an interpretation is warranted having regard to the

fact that a person who would have invested a huge sum

would lose the dealership by the IOC being endowed

with the power to terminate the contract by merely

giving a notice of three months ’ duration. Since the

notice was, in this case, admittedly sent within the

first 15 years, clause (3) was inapplicable, and

there was no termination in law. The learned counsel

did agree that such a contention was never raised

before the arbitrator, the District Judge or the High

Court. Next, he contended that the alleged

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acceptance dated 28.11.2006 was not un ambiguous. He

supported the view taken by the High Court . He

pointed out that before the actual acceptance which,

he points out, took place only on 07.12.2006 by the

Management, the first respondent had withdrawn the

earlier communication. He would submi t that in the

facts of the case there was no error committed by the

High Court in interfering with the Award. In regard

to the complaint of the appellants that the High

Court has exceeded its authority acting under Section

36 of the Act by modifying the Award, he very fairly

submits that there may be merit in the said

contention having regard to the view taken by this

Court.

ANALYSIS

18. The controversy revolves around clause (3) which

we have set out earlier. We must proceed in the

matter on the basis that we cannot permit the first

respondent to contend that termination of the

dealership cannot be brought about by giving a three

months’ notice during the first 15 years of the

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dealership. Such an interpretation was not placed

for the consideration of the Arbitrator. It is not

even raised before the District Court or the High

court. The first respondent is calling upon this

Court in a case arising under the Act to place a

wholly novel inte rpretation. It is not as if the

contention canvassed is the only view possible. In

fact, the conduct of the first respondent is premised

on the interpretation which leaves it open to the

parties to terminate the contract by giving three

months’ notice even within the first 15 years of the

dealership.

19. On a perusal of clause (3), in fact, it occurred

to this Court that here is a term in a contract which

expressly does not require any acceptance of the

other party for the premature termination of the

contract by giving a notice of three months. We

would break down the clause as meaning that it

contemplated determination of the agreement by either

party (words lifted from the contract as such) by

giving three months notice to the other party with

the intention to terminate the agreement.

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Thereafter, the clause provides that upon the

expiration of such not ice, the agreement and the

licence granted would stand cancelled and revoked.

There are no words even faintly suggesting acceptance

of a notice of intention to terminate the agreement

as being indispensable for the determination of the

agreement. The ball is set rolling by the issuance

of the notice and the process appears to successfully

culminate in the agreement and the licence granted

under the agreement being cancelled or revoked.

20. Though such a view appears to be the correct

construction of the agre ement, Shri Shailash Madiyal

the learned counsel, appearing for the first

respondent would point out that IOC and what is more,

even the arbitrator, and therefore the District Court

and the High court have all proceeded on the basis

that acceptance of the notice of termination alone

suffices. In view of the fact that this appears to

be the case, we would consider the matter on the

basis that acceptance is necessary.

21. There is no dispute that the first respondent

addressed communication dated 2 5.09.2006. It is also

20

indisputable that the officers of the IOC insisted

that the first respondent must notarise the notice.

A meeting in this regard did take place. The notice

came to be notarised and what is more, received on

16.11.2006. A perusal of the notice dated 25 .09.2006

clearly indicates that the first respondent has

clearly indicated that it gave the version that they

have shifted to Bangalore for their childrens

education, and what is more, therefore, they were not

able to look after the deal ership. They wished to

“withdraw from the dealership and appoint new R.O.

dealers before three months as per our agreement Dt:

13

th

Oct. 2003.” In other words, there cannot be even

a shred of doubt that the first respondent indeed

invoked clause (3). The words used may appear to be

inelegant. However, the conduct as noticed leaves us

in no doubt, and what is more, even the first

respondent does not have a case that the action was

not traceable to the provisions of clause (3) . On

the expiry of three months, the inexorable

consequences provided in clause (3) would have

ensued. However, since we are proceeding on the

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basis that IOC must have signified i ts assent for the

notice to bear fruit, on 18.11.2006, the second

appellant in the appeal filed by IOC referred to the

notarised letter dated 03.10.2006 which was received

on 16.11.2006. IOC has taken note of the intention of

the first respondent to resign from the dealership.

Thereafter, we may note that the first respondent was

requested to continue operation till arrangements

were made. Lastly, the letter ends with expression

of gratitude for the association of the first

respondent with the IOC and wishing both the partners

the very best in their future endeavours. From the

terms and the tone of the letter and the

circumstances, the arbitrator who is the chosen judge

of the facts and the merits concluded that there was

acceptance of the notice. It could be open to debate

whether there was sufficient articulation of the

acceptance. Words such as “we have taken note of

your intention to resign from our dealership ” could

perhaps have been supplanted with the benefit of

hindsight with different words. But the question

which arises is when the letter is read in the

22

context of the facts as a whole, particularly, in the

light of the jurisdiction of the Court to interfere

with a finding of the arbitrator within his

jurisdiction, we are of the view that the High Court

has palpably erred. Clause (3) permits either party

to bring about a premature termination of the

contract. By giving a notice of three months, if the

noticee is the IOC, IOC is enabled to make

arrangements so that essential services provided by a

dealer do not suffer abrupt disruption. In other

words, alternate arrangements could be made.

Likewise, a termination by IOC would put the dealer

on alert and it can appropriately take steps towards

arranging its affairs in a fair manner.

22. Proceeding, therefore, on the footing that in the

above sense a premature termination of the agreement

would need acceptance, we are unable to find that the

view taken by the arbitrator in the facts, can be

characterised as being perverse. It is undoubtedly a

plausible view. It closes the door for the court to

intervene. The finding of the arbitrator cannot be

described as one betraying “a patent illegality”.

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23. The High Court has proceeded by adverting to draw

a distinction between “termination of the agreement”

and “resignation from dealership”. The High Court

has also proceeded on the basis that since the

agreement does not prohibit the first respondent from

withdrawing the case, the case has to be tested on

the anvil of the Contract Act. A merit review was

undertaken to find that the offer of the first

respondent to ‘resign’ was not accepted by letter

dated 22.11.2006.

24. It may be true that the clause in question did

not provide for resignation from dealership. Indeed,

it provides only for termination of the agreement.

What the first respondent has indicated in letter

dated 25.09.2006, the contents of which have been

reiterated in the notarised version dated 03.10.2006

and received on 16.11.2006 by the second appellant,

is that the first respondent was ‘withdrawing’ from

the dealership. We are unable to support the High

Court on the basis that the clause in question did

not contemplate resignation. In fact, though not in

all cases, a resignation m ay assume effect only upon

24

acceptance by the employer. What , on the other hand,

is contemplated in clause (3) is a notice of three

months terminating the contract by either party.

25. Shri Shailash Madiyal pointed out that acceptance

by the Management of IOC actually took place on

07.12.2006 and not on 22.11.2006. It is true that in

the pleading (before the District Court in

proceedings under Section 34), it is inter alia

stated as follows:-

“4. Subsequent to the submission of the

resignation the defendants went ahead with

the termination of the dealership on the

receipt of the notorized letter from the

claimants, which was approved by the

Management of IOC on 07.12.06 and had to

take action for making alternative

arrangements to operate the retail outlet

for protecting the commercial interest of

the Corporation and also to keep in mind of

the supply of petroleum product to the

public at large.”

“5. The dealer have requested for

withdrawal of dealership on 25.09.2006. As

stated in the earlier para based on the

notorized letter reinforcing what is stated

in letter dated 25.09.2006. This defendant

has obtained management approval for

termination of the dealership on 07.12.2006

and have also replied through the letter

dated 21.12.06 mentioning that the dealers

request for withdrawal cannot be

considered. There is no obligation on the

part of Indian Oil corporation as per

25

clause 3 of the dealership agreement to

reject the letter of resignation submitted

by the plaintiffs.”

However, in the light of communication dated

18.11.2006, essentially recognizin g and in substance

conveying acceptance or approval; first respondent

cannot draw strength from the same. IOC has a case

that it was for taking the matter forward in the

matter of re- awarding the dealership that the

decision dated 07.12.2006 was made. More importantly,

the communication purporting to take back the

withdrawal was given by first respondent on

11.12.2006 which is after 07.12.2006.

26. Proceeding on the basis that acceptance is

necessary, we are of the view that the High Court in

a proceeding under Section 37 of the Act acted

illegally in interfering with the finding of the

Arbitrator and what is more, a finding found

acceptable to the District Judge under Section 34 of

the Act that there was acceptance vide letter dated

18.11.2006.

26

27. The High Court also erred in proceeding to order

restoration of the dealership to the first respondent

after setting aside the award and going further by

leaving it open to the first respondent to claim

damages. It is beyond the pale of any doubt that the

Court cannot, after setting aside the award, proceed

to grant further relief by modifying the award. It

must leave the parties to work out their remedies in

a given case even where it justifiably interferes

with the award [See in this behalf Project Director,

National Highways No. 45 E and 220 National Highways

Authority of India v. M. Hakeem and another

3

].

28. The appeals are allowed. The impugned judgement

will stand set aside and the award restored. Parties

are to bear their respective costs.

………………………………….J.

[K.M. JOSEPH]

……………………………………J.

[B.V NAGARATHNA]

NEW DELHI;

DATED: MAY 09, 2023.

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(2021) 9 SCC 1