Oil Corporation Ltd. Vs. Amritsar Gas Service & Ors  INSC
361 (19 November 1990)
Jagdish Saran (J) Verma, Jagdish Saran (J) Rangnathan, S. Fathima Beevi, M. (J)
1990 SCR Supl. (3) 196 1991 SCC (1) 533 JT 1990 (4) 601 1990 SCALE (2)1056
Act, 1940--Section 34--Termination of dis- tributorship agreement--Granting of
relief--Award of compen- sation for notice period.
Act, 1940--Section 30--Objection to award--Granting of relief on the finding Of
breach of con- tract contrary to Section 14(1) of the Specific Relief Act--An
error of law apparent on the face of award.
Act, 1940--Section 30--Objection to award--Direction based on finding of
fact--Not to be inter- fered with.
Act, 1940--Section 30--Objection to award--Reference to arbitrator by Supreme
Court--Refusal to consider counter-Claim by arbitrator--An error of law appar- ent
on the face of the award.
Distributorship Agreement was made between the appel- lantCorporation and the
respondent No. 1, for sale of the Liquefied Petroleum Gas (LPG) Cylinders for
the consumers as per the terms and conditions specified therein some of.
appellant-Corporation received certain complaints about the working of respondent
No. 1 which were acts preju- dicial to the interest, reputation and products of
clause 27 of the Agreement the appellant-Corpo- ration terminated the
by the termination of the distributorship, respondent No. 1 flied a suit in the
Court of Sub-Judge 1st Class, for a declaration that termination of the distribu-
torship was illegal and void; and that the distributorship continued
notwithstanding the said termination.
appellant-Corporation flied an application under Section 3A 197 of the
Arbitration Act for staying the suit, which was rejected by the trial Court.
against that order and thereafter a revision to the High Court were also
dismissed giving rise to the present appeal by special leave.
Court referred the disputes to an arbitrator and appointed a retired Judge of
the Court as arbitrator. Later this Court appointed a retired Judge of the High
Court of Punjab & Haryana in the place of the earlier arbitrator.
while making the award held that the appellant Corporation committed breach of
contract and was liable to remedy the breach by restoration of the distribu- torship
and also liable to pay compensation. The counter- claim made by the
appellant-Corporation in the written statement was not decided by the
arbitrator on the ground that it did not come within the scope of the
No. 1 filed an application to direct the arbitrator to file the award and to
make the award a rule of the Court and to pass a decree in terms thereof.
appellant-Corporation filed objections under Section 30 of the Arbitration Act,
contending that the validity of the award has to be tested on the principles of
private law and the law of contracts, and not on the touchstone of
constitutional limitations; that the relief of restoration of the contract
granted by the arbitrator was contrary to the prohibition contained in Sections
14 and 16 of the Specific Relief Act.
No. 1 contended that there was a presumption of validity of award and the
objections taken must be ignored; and that the termination of distributorship
cast stigma on the partners of the firm; that counter-claim of the
appellant-Corporation was rightly not considered since it was not made before
the order of reference; that the reference made being of all disputes in the
suit, the nature of relief to be granted was also within the arbitrator's
jurisdiction; and interest also must be awarded to the respondent.
Court disposing of the application of the respond- ent No. 1 and the objections
of the appellant,
1. The finding in the award being that the Distribu- torship 198 Agreement was revokable
and the same being admittedly one for rendering personal service, the relevant
provisions of the Specific Relief Act were automatically attracted. Sub-
section (1) of Section 14 of the Specific Relief Act speci- fies the contracts
which cannot be specifically enforced, one of which is 'a contract which is in
its nature 'deter- minable'. [209C-E]
Agreement being revokable by either party in accord- ance with clause 28 by
giving thirty days' notice, the only relief which could be granted was the
award of compensation for the period of notice, that is 30 days. [210B-D]
Granting the relief of restoration of the distribu- torship even on the finding
that the breach was committed by the appellant-Corporation is contrary to the
mandate is Section 14(1) of the Specific Relief Act and there is an error of
law apparent on the face of the award which is stated to be made according to
'the law governing such cases'. The grant of this relief in the award cannot be
appellant-Corporation has also been directed in the award to return the amounts
of two hank drafts on the ground that no supplies were made to the
plaintiff-respond- ent No. 1 against the amounts. This direction was based on a
finding of fact which cannot be gone into and the same cannot be interfered
with. [209G-H] Since the reference to the arbitrator was made by this Court in
an appeal arising out of refusal to stay the suit under Section 34 of the
Arbitration Act, and the reference was made of all disputes between the parties
in the suit, the occasion to make a counter-claim in the written state- ment
could arise only after the order of reference. The pleadings of the parties
were filed before the arbitrator, and the reference covered all disputes
between the parties in the suit. Accordingly, the counterclaim could not be
made at any earlier stage. Refusal to consider the counter-claim disclosed an
error of law apparent on the face of the award.
M/s. Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, 
3 SCC 293; Mahabir Auto Stores & Ors. v. Indian Oil Corporation & Ors.,
JT (1990) 1 SC 363; Km. Shrilekha Vidyarthi etc. etc. v. State of U. P. &
Ors., JT (1990) 4 SC 211, referred.
based an private law rights alone referred since the plaintiffs' 199 claim was
confined duly to private law rights and not based on public law rights.]