2022 (2) TMI 1450 - SC - Indian Laws

Jurisdiction of the Arbitrator ( Arbitral Tribunal ) - Challenge to order of termination of the dealership agreement - breaches of MDG Guideline and Dealership Agreement - entitlement for restoration - validity of Termination letter - Claimant proves that the Claimant is entitled for Order/Decree against the Respondent or not - jurisdiction to increase monthly Lease Rent - HELD THAT - Section 5 of the Arbitration and Conciliation Act, 1996 provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I of the 1996 Act, no judicial authority shall intervene except where so provided in Part I. The lease agreement and the dealership agreement are distinct agreements, independent of each other. Disputes under the lease agreement were referrable to the arbitration of the Managing Director of the Appellant who was to be the sole Arbitrator, and only if the Managing Director was unable or unwilling to act as sole Arbitrator the disputes were to be referred to the sole Arbitrator designated or nominated by the Managing Director in his place. If the disputes could not be referred to the Managing Director for any reason, the matter was not to be referred to arbitration at all - In the instant case, the Respondent invoked the Arbitration Clause under the Dealership Agreement and approached the Director (Marketing) of the Appellant who appointed Mr. B.L. Parihar as the sole Arbitrator. The Arbitrator, Mr. B.L. Parihar, nominated by the Director (Marketing) of the Appellant had no authority and/or jurisdiction to adjudicate any dispute pertaining to the lease agreement. The Arbitral Award is liable to be set aside in so far as the same deals with disputes with regard to the Lease Agreement which are not contemplated by the Arbitration Clause in the dealership agreement and/or in other words, do not fall within the terms of the submission to Arbitration. The Arbitral award is thus liable to be set aside under Section 34(2)(a)(iv) of the 1996 Act. As held by this Court in Associate Builders v. Delhi Development Authority 2014 (11) TMI 1114 - SUPREME COURT , cited by Mr. Prasenjit Keswani, learned counsel appearing on behalf of the Respondent, Section 34 in conjunction with Section 5 of the 1996 Act makes it clear that an arbitral award that is governed by Part I of the 1996 Act, can only be set aside on grounds mentioned under Sections 34(2) and (3) of the said Act and not otherwise. The Court considering an application for setting aside an award, under Section 34 of the 1996 Act cannot look into the merits of the award except when the award is in conflict with the public policy of India as provided in Section 34(2)(b)(ii) of the 1996 Act. The lease agreement which was in force for a period of 29 years with effect from 15th April, 2005 specifically provided for monthly lease rent of Rs.1750 per month for the said plot of land on which the retail outlet had been set up. It is well settled that an Arbitral Tribunal, or for that matter, the Court cannot alter the terms and conditions of a valid contract executed between the parties with their eyes open - It is well settled that a judgment of a Court is precedent for the issue of law which is raised and decided. Words and phrases used in a judgment cannot be read in isolation, out of context. The impugned judgment of High Court is set aside. The impugned judgment of the District Court insofar as the same pertains to lease rent and lease period is also set aside - Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the Arbitrator.
2. Validity of the termination of the dealership agreement.
3. Entitlement to restoration of the dealership.
4. Claim for damages.
5. Increase in lease rent and lease period.

Detailed Analysis:

Jurisdiction of the Arbitrator:
The primary issue was whether the Arbitrator appointed under the dealership agreement had the jurisdiction to adjudicate disputes arising from the lease agreement. The lease agreement stipulated that disputes were to be referred to the Managing Director of the Appellant or a nominee, and if this was not possible, no arbitration would occur. The dealership agreement, however, provided for arbitration by the Director (Marketing) or his nominee. The Arbitrator appointed under the dealership agreement did not have the authority to adjudicate disputes under the lease agreement. The Supreme Court held that the Arbitral Award dealing with lease agreement disputes was beyond the scope of the submission to arbitration and thus liable to be set aside under Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996.

Validity of the Termination of the Dealership Agreement:
The Arbitrator found that the Respondent had committed breaches of the Marketing Discipline Guidelines (MDG) 2005 and the dealership agreement, making the termination of the dealership agreement by the Appellant valid and legal. The Supreme Court upheld this finding, noting that the Respondent admitted to the irregularities in their reply to the show cause notice.

Entitlement to Restoration of the Dealership:
Given the valid termination of the dealership agreement due to breaches by the Respondent, the Arbitrator concluded that the Respondent was not entitled to restoration of the dealership. The Supreme Court agreed with this conclusion.

Claim for Damages:
The Respondent claimed Rs.45,28,000/- in damages, which the Arbitrator rejected. The Arbitrator noted that both parties had made substantial investments, but the Respondent's serious irregularities justified the termination of the dealership, negating any entitlement to damages. The Supreme Court upheld this part of the award.

Increase in Lease Rent and Lease Period:
The Arbitrator increased the monthly lease rent from Rs.1750/- to Rs.10000/- with a 10% increase every three years and reduced the lease period from 29 years to 19 years and 11 months. The Supreme Court found that the Arbitrator exceeded his jurisdiction in modifying the lease terms, which were beyond the scope of the arbitration agreement under the dealership contract. The Court emphasized that an Arbitral Tribunal cannot alter the terms of a valid contract. The award concerning the increase in lease rent and the reduction of the lease period was set aside.

Conclusion:
The Supreme Court allowed the appeal, setting aside the High Court's judgment and the District Court's judgment insofar as it pertained to lease rent and lease period. The Arbitrator's award was also set aside to the extent it increased the lease rent and reduced the lease period. The termination of the dealership agreement and the rejection of the damages claim were upheld.