Akrabad Filling Station And Another v. Bharat Petroleum Corporation Ltd And Others

Manoj Misra, J—Heard Sri Ramendra Asthana for the petitioners; Sri Vikas Budhwar for the contesting respondents 1, 2 and 3; and perused the record.

2. The present petition has been filed assailing the orders dated 31.10.2014 and 23.09.2015 passed by the Territory Manager (Retail), Bharat Petroleum Corporation Ltd. (in short BPCL) and the Appellate Authority/Executive Director, BPCL, respectively, by which the dealership agreement of the petitioner-firm, dated 03.11.2011, with BPCL has been terminated and the appeal preferred against it has been dismissed.

3. Briefly stated the facts of the case are that a Dispensing Pump and Selling License (in short DSPL or dealership agreement) was executed between BPCL and the petitioner no.2 (proprietor of petitioner no.1 i.e. petitioner-firm) on 03.11.2011 whereby the petitioner was permitted to enter the retail outlet premises of BPCL to use its facilities and to sell the petroleum products of BPCL in terms of the dealership agreement. On 14.08.2013, an inspection was carried out by a team of Quality Control Officers who discovered that MS DU (dispensing unit) was delivering 90ml short per 5 liters measure dispensed; deliveries in L&T Zline was found to be delivering 60ml, 40 ml and 20 ml in excess per 5 liters product dispensed; electronic tampering was observed in sensor card of pulsar of dispensing unit of MS DU and L&T Zline; in L&T Pacemaker, the standard sealing procedure was not followed as the pulsar cover was not sealed by W & M Department, further, the gear cover was not included while sealing metering assembly by W&M Department; positive stock variation was observed in MS by 645 liters beyond permissible variation of 4% of tank stock i.e. 229 liters; no maintenance report for repairs of DU-MS and DU-HSD was found which could confirm repairs of the two units, further the dealer was found maintaining Allen keys which fitted in the pulsar box cover Allen bolts; aluminum bucket with bonding wire were not available at RO; and tank lorry sample of MS was not maintained as per MDG 2012. Following discovery of irregularities, sale and supplies from the outlet was suspended. Thereafter, testing reports were obtained and a show cause notice dated 13.09.2013 was issued to the petitioner''''s firm to submit explanation in respect of the irregularities found. The show cause notice also cited various clauses of DSPL to demonstrate that it was the responsibility of the licensee to see that full measure is delivered from the pumps installed by the company on the premises. Upon receipt of show cause notice, the petitioner submitted its reply. The stand taken in the reply was that the charge of short delivery by DU- MS was not correct; that L&T Z line was not in use and was under repair; that he has no knowledge of Pulsar and other related electronic instruments, moreover, machines were installed after shifting from other place; that the gear cover was not included while sealing metering assembly by W&M Department; that stock variation has occurred on account of MS tank behavior and as such the dip reading may not be accurate; that despite request regular repairs were not carried out; that Allen keys might have been there but its use is not known nor it was used for opening pulsar box cover; that aluminum bucket was there but not in working condition; that tank lorry sample of MS was kept to the extent of one liter and it was not within the knowledge of the petitioner that two liters sample was required to be kept.

4. It is noteworthy that in the reply to the show cause notice, which has been brought on record as annexure no.10 to the petition, no statement has been made that relevant documents have not been supplied.

5. The Territory Manager (Retail), Mathura, by his order dated 31.10.2014, after considering the reply of the petitioner as well as providing personal hearing to the petitioner, found that the petitioner had interfered with working parts of the dispensation unit by installing additional fittings with an intention to manipulate deliveries and that the petitioner delivered short supply to the customers for the price received from them and had thereby cheated them and illegally enriched itself. After recording the findings, as above, a decision was taken to terminate the agreement.

6. Against the order of the Territory Manager (Retail), the petitioner preferred an appeal under clause 8.9 of the Marketing Discipline Guidelines (MDG) to the Executive Director (Retail), BPCL (the appellate authority). The appellate authority, by its order dated 23.09.2015, dismissed the appeal of the petitioner and upheld the termination of dealership agreement dated 03.11.2011. While dismissing the appeal, apart from dealing with other pleas taken by the petitioner, the appellate authority in paragraph 4.1 of its order discarded the plea taken by the petitioner that positive stock variation was found on account of tank tilt affecting accuracy of the dip reading, by observing that if that was so then how could in earlier inspection conducted on 11.7.2012 no stock variation beyond permissible limit was found.

7. Sri Ramendra Asthana, learned counsel for the petitioner by placing reliance on averments made in paragraph 27 of the petition submitted that the orders impugned are not only illegal and arbitrary but also violative of principles of natural justice inasmuch as along with show cause notice copy of reports and other documents was not enclosed and material relied upon for holding charge of electronic tampering was not supplied to the petitioner.

8. Sri Vikas Budhwar, learned counsel for the respondents, has invited attention of the court to paragraph 52 of the petition where statement made in paragraph 27 of the writ petition has been traversed. He stated that the show cause notice dated 13.09.2013 reflects that copy of the test reports were enclosed with it. It has also been stated that nothing has been brought on record to substantiate that the petitioner had asked for furnishing copy of the documents such as test reports. He also pointed out that no such plea, as taken in paragraph 27 of the writ petition, was taken either in the reply to the show cause notice or before the appellate authority. Sri Budhwar stated that the orders impugned are well reasoned orders based on cogent material and supported by finding that positive stock variation beyond the permissible limit was found which was suggestive of short supplies made by the licensee through tampered meters. It was thus claimed that the orders impugned cannot be termed arbitrary or illegal.

9. Sri Vikas Budhwar also challenged the maintainability of the petition on ground that there exists an arbitration clause contained in paragraph 19 (a) of the DPSL agreement where under all disputes arising from the agreement could be resolved. It was thus suggested that the petitioner be relegated to alternative remedy of arbitration.

10. In response to the plea that petitioner be relegated to remedy of arbitration, Sri Ramendra Asthana, learned counsel for the petitioner, has placed reliance on few apex court decisions, namely, Harbans Lal Sahnia and another v. I.O.C. Ltd. and others, (2003) 2 SCC 107 and Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others, (1998) 8 SCC 1 so as to contend that the writ court''''s jurisdiction is not ousted by availability of alternative remedy and, despite alternative remedy being available, the High Court may still exercise its writ jurisdiction particularly where there is failure of principles of nature justice or where the order impugned is wholly without jurisdiction or where the vires of an Act is challenged or where the writ petition seeks enforcement of fundamental rights. It has been submitted that termination of dealership snatches away the bread and butter of a dealer and therefore it affects the fundamental rights of the petitioner and, accordingly, the petitioner should not be relegated to remedy of arbitration, at this stage.

11. Sri Ramendra Asthana also placed reliance on a judgment of this court in Anil Service Station (M/s. Rahuwa Mustafabad, District Azamgarh and another v. Union of India and others,2009 2 EFR 544 wherein this Court had observed that where the arbitrator nominated by the arbitration clause is a person who has decided the appeal, dismissal of writ petition on the ground of availability of alternative remedy would not be appropriate because, under the circumstances, relegating the petitioner to alternative remedy would be sending the matter from Caesar to Caesar''''s wife.

12. Sri Ramendra Asthana further contended that the appeal of the petitioner was decided by the Executive Director (Retail) whereas the arbitration clause provides for the Director (Marketing) of the company or his nominee as an arbitrator. It was thus stated that the remedy of arbitration, after decision of the appeal, would be of no consequence because it would lie before an officer of more or less the same level.

13. In response to the above submission, Sri Vikas Budhwar, has submitted that the facts of the case of Harbans Lal Sahnia were completely distinguishable from the facts of the present case inasmuch as here the charge against the petitioner is of tampering the meter and, that apart, here, full opportunity of hearing was provided to the petitioner and thereafter the order was passed.

14. Sri Vikas Budhwar has submitted that Director (Marketing) is an officer higher than the Executive Director (Retail). It has been urged that in Writ C No. 73415 of 2010, decided on 10.01.2012, the plea taken on behalf of the petitioner to avoid alternative remedy of arbitration on the ground that arbitration would be a mere formality because it would be from one officer of a company to the other was specifically rejected.

15. Sri Vikas Budhwar further pointed out that in view of the amended provisions of Section 12 (5) of the Arbitration and Conciliation Act, 1996 (in short Act, 1996), if the petitioner is of the view that the arbitrator nominated under the arbitration clause falls under any of the categories specified in the 7th Schedule then the petitioner can apply to the Court for appointment of a suitable arbitrator by placing reliance on a three-judges bench decision of the Apex Court in Trf Limited v. Energo Engineering Projects Limited ., (2017) 8 SCC 377.

16. Having considered the submissions of the learned counsel for the parties, before dealing with the merits of the case, it would be appropriate to first examine whether in view of the arbitration clause the petition ought to be dismissed with liberty to the petitioner to invoke arbitration clause. However, before examining the above aspect, it would be appropriate to first examine whether the arbitration clause as it stands would be invokable, now, in view of the substituted provisions of Section 12 of the Act, 1996 and the Seventh Schedule as substituted/ inserted by Act No.3 of 2016 with retrospective effect from 23.10.2015.

17. Section 12 of the Act, 1996 after the amendment reads as follows:-

"12. Grounds for challenge:-(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--

(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and

(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

Explanation 1.-- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.-- The disclosure shall be made by such person in the form specified in the Sixth Schedule.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) 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 qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing. "

18. sub-section (5) of section 12 is of relevance in the facts of the present case. It provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. Entry no.12 of the Seventh Schedule enumerates a manager, director or a person being part of the management, or having similar controlling influence in one of the parties. Accordingly, where Company is a party to a dispute its Director would be disqualified from being appointed arbitrator for that dispute.

19. In the instant case, the arbitration clause 19 (a), which is at page 56 of the paper-book, provides that any dispute or difference of any nature whatsoever, any claim, cross-claim, counter-claim or set off of the Company against the Licensee 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 Company or of some Officer of the Company who may be nominated by the Director (Marketing). It is further provided therein that "it is also a term of this contract that no person other than the Director (Marketing) of the Company or a person nominated by such Director (Marketing) as aforesaid shall act as arbitrator hereunder". It has also been provided that the award of the arbitrator so appointed shall be final, conclusive and binding on all parties to the agreement subject to the provisions of the Act, 1996 or any statutory modification or re-enactment thereof and the rules made thereunder for the time being in force shall apply to the arbitration proceedings.

20. In TRF Ltd. Case the apex court dealt with an arbitration clause which read as under:

"33. Resolution of dispute/arbitration

(a) In case any disagreement or dispute arises between the buyer and the seller under or in connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation.

(b) If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration.

(c) All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended.

(d) Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of buyer or his nominee. Venue of arbitration shall be Delhi, and the arbitration shall be conducted in English language.

(e) The award of the Tribunal shall be final and binding on both, buyer and seller."

21. Interpreting the above-quoted arbitration clause, the apex court in paragraphs 49, 50 and 54 of the report, observed:

49. Regard being had to the same, we have to compare and analyse the arbitration clause in the present case. Clause (c), which we have reproduced earlier, states that all disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Act, as amended. Clause (c) is independent of Clause (d). Clause (d) provides that unless otherwise provided, any dispute or difference between the parties in connection with the agreement shall be referred to the sole arbitration of the Managing Director or his nominee.

50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law..........

54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated............"

22. After holding as above, the apex court in paragraph 55 of the report concluded that the arbitration clause (c) survives and therefore the Court can appoint arbitrator. The relevant portion of paragraph 55 of the report is extracted below:

"However, as Clause (c) is independent of Clause (d), the arbitration clause survives and hence, the Court can appoint an arbitrator taking into consideration all the aspects. Therefore, we remand the matter to the High Court for fresh consideration of the prayer relating to appointment of an arbitrator."

23. However, before holding as above, the apex court in TRF Ltd. Case in paragraphs 23, 27, 28, 45, 46, 47 and 48 of the report had the occasion to examine and discuss the earlier two-judges bench decision rendered in the case of Newton Engg. & Chemicals Ltd. v. Indian Oil Corpn. Ltd., (2013) 4 SCC 44, where, in paragraph 7 of the report, the Apex court had held as follows:

"7. Having regard to the express, clear and unequivocal arbitration clause between the parties that the disputes between them shall be referred to the sole arbitration of the ED (NR) of the Corporation and, if ED (NR) was unable or unwilling to act as the sole arbitrator, the matter shall be referred to the person designated by such ED (NR) in his place who was willing to act as sole arbitrator and, if none of them is able to act as an arbitrator, no other person should act as arbitrator, the appointment of Director (Marketing) or his nominee as a sole arbitrator by the Corporation cannot be sustained. If the office of ED (NR) ceased to exist in the Corporation and the parties were unable to reach to any agreed solution, the arbitration clause did not survive and has to be treated as having worked its course. According to the arbitration clause, sole arbitrator would be ED (NR) or his nominee and no one else. In the circumstances, it was not open to either of the parties to unilaterally appoint any arbitrator for resolution of the disputes. Sections 11(6)(c), 13 and 15 of the 1996 Act have no application in the light of the reasons indicated above."

24. The apex court in TRF Ltd. Case distinguished Newton Engg. Case on facts by observing that in Newton Engg. Case the arbitration clause specifically provided that no other arbitrator than the one specified would be appointed. In fact, in TRF Ltd. Case the apex court dealt with three different types of situation in the background facts of three prior decisions of the apex court, namely, Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151; Newton Engg. Case ; and Deep Trading Co. v. Indian Oil Corporation Ltd., (2013) 4 SCC 35, and, in that background, observed, in paragraphs 47 and 48 of the report, as follows:

"47. The aforesaid three cases exposit three different situations. The first one relates to non-failure of the procedure and the authority of the owner to appoint the arbitrator; the second relates to non-survival of the arbitration clause; and the third pertains to forfeiture of the right of the Corporation to appoint the sole arbitrator because of the failure to act with the procedure agreed upon by the parties in Clause 29 which was the arbitration clause in the agreement. It is interesting to note that Clause 29 in Deep Trading Co. does not mention unlike Newton Engg. that no one else shall arbitrate upon.

48. One aspect needs to be noted. In the first and third case, the parties had not stipulated that there will be no one else who can arbitrate while in the second case i.e. Newton Engg., such a stipulation was postulated."

25. Upon careful perusal of the amended provisions of the Act, 1996; the phraseology of the arbitration clause 19 (a); and the law laid down by the apex court in Newton Engg. Case as well as TRF Ltd. Case , this Court is of the view that indisputably though there is an arbitration clause under which the parties can settle their dispute arising from the agreement but, as the arbitration clause specifically provides that it is a term of the contract that no person other than the Director (Marketing) of the Company or a person nominated by such Director (Marketing) as aforesaid shall act as an arbitrator, the same does not survive in view of the amended provisions of sub-section (5) of section 12 of the Act, 1996 read with 7th Schedule of the Act, 1996. More so, because, apart from clause 19(a), there is no independent clause, as was found in TRF Ltd. Case , for arbitration. In so far as the stipulation in clause 19 (a) that the licensee will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an Officer of the Company or that he has dealt with the matters to which the contract relates or that in the course of his duties as an Officer of the Company, he had expressed view on all or any of the matters in dispute or difference is concerned, that will not save the arbitration clause inasmuch as such an agreement would not amount to waiver as contemplated by the proviso to sub-section (5) of section 12 of the Act, 1996. Because waiver by a party of its right to challenge an award on the ground contemplated by sub-section (5) of section 12 would come into play only if such waiver is made by an express agreement in writing subsequent to the arising of dispute. Any previous written agreement therefore cannot be interpreted as waiver by a party of its right to challenge an award on the ground contemplated by sub-section (5) of section 12 of the Act, 1996. Therefore, the arbitration clause 19(a), in absence of express agreement in writing by the party, subsequent to the arising of disputes, waiving its right to object to the appointment of an arbitrator falling in the specified category, by operation of law, has been rendered unworkable.

26. As no other arbitration agreement has been shown to have come into existence between the parties, for the foregoing reasons, the preliminary objection raised by the learned counsel for the respondent that the petitioner can invoke the arbitration clause and as such the writ petition should not be entertained is overruled.

27. Coming to the merits of the case, the learned counsel for the petitioner though sought to argue that certain reports were not supplied to the petitioner and therefore principles of natural justice were violated but such claim of the petitioner has been disputed in the counter affidavit. Moreover, the learned counsel for the petitioner has failed to demonstrate whether any such plea was raised either before the Territory Manager (retail) or in appeal before the appellate authority. Therefore, the said plea is not acceptable.

28. A feeble attempt though was made to claim that the order impugned was not justified as inspections / testing was not as per law and the guidelines. But no attempt was made to demonstrate as to how inspection conducted and the testing made was not as per the law and guidelines. Moreover pleadings in that regard have been traversed by the respondent.

29. Keeping in mind that impugned action has been taken after making inspection/ testing of dispensation unit, after giving opportunity of hearing to the petitioner, by a detailed reasoned order, upon finding stock variation and after drawing conclusion that the petitioner had tampered dispensation unit to manipulate delivery, no case for interference is made out in exercise of discretionary powers under Article 226 of the Constitution of India.

30. The petition is accordingly dismissed without prejudice to the right of the petitioner to institute a civil suit, if so advised.