- Supreme Court Bench, in the case of Indian Oil Corporation Ltd v Shree Ganesh Petroleum Rajgurunagar,has observed that an award will be patently illegal where the Arbitral Tribunal fails to acts on terms of the contract or ignores the specific terms of a contract.
- Brief facts of the case are that the Appellant took a plot of land (premise) on lease for a term of 29 years from the Respondent and executed two agreements viz. a Lease Agreement and a Dealership Agreement.
- As per the terms of the contract, the Appellant was entitled to assign, transfer, sublet, underlet or part with the possession of the premise or any part thereof to any person without the consent of the Lessor.
- The terms of the lease agreement provided for dispute redressal of any nature to be referred to the sole Arbitrator of the Managing Director (MD) of the Appellant and if the MD is unable to act as the Arbitrator, the matter was to be referred to a person designated by him. It was also mutually agreed that where the MD cannot act as the Arbitrator as aforesaid, the matter shall not be referred to Arbitration.
- And as per the Dealership Agreement, any dispute was to be referred to the sole arbitrator of the Marketing Director of the Appellant, who might himself act as the Arbitrator or nominate another officer of the Appellant to act as the Arbitrator.
- The Appellant, by a letter dated 20 August 2008, called upon the Respondent to vacate the retail outlet and hand over peaceful possession thereof to the Appellant and also to settle accounts.
- The Defendant challenged the termination and the matter was referred to Arbitration. The Arbitrator held the termination of lease to be valid and the lease period was reduced from 29 years to 19 years 11 months. Further, monthly lease rent was also increased with a 10% increment clause after every 3 years.
- The Issue before the Court was whether adjudication of dispute under the Lease Agreement was beyond the jurisdiction of the Arbitrator.
- The Supreme Court Bench held that Arbitration award, to the extent of the lease rent and period, was patently beyond the scope of the Arbitrator appointed in terms of the Dealership Agreement.
- The Bench held that Arbitration Tribunal is a creature of Contract and an award is patently illegal where the Arbitral Tribunal has failed to act in terms of the contract or has ignored the specific terms of a contract.
- The Bench further noted that an error in interpreting the contractual terms where there is a valid and lawful submission of the disputes is an error within the jurisdiction of the Arbitral Tribunal.
- The Bench further noted that the Court does not sit in appeal in case of award made by a Tribunal with regards to interpretation of a contractual terms unless such interpretation is unreasonable or perverse.
- In cases of contractual provisions being ambiguous or capable of being interpreted in more than one way, Courts cannot interfere with the Arbitral Award only because it is of the opinion that better alternate interpretation could have been possible.
- The Court held that the Arbitral award ignoring the terms a contract in relation to the lease rent and lease term is in patent disregard of the terms of the Agreement between the parties and thus, against public policy.
- Lastly, the court also observed that the role of a Arbitrator is to arbitrate in terms of the contract and he has no separate power apart from the power under the contract. Any award beyond the terms of the contract will be beyond the scope of his jurisdiction.
- An ArbitralTribunal is not a court of law and thus cannot exercise powers ex debito justitiae (as a matter of right)
"Loved reading this piece by Megha?
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
