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Indian Oil Corporation Ltd. & Anr. v. T. Natarajan

Civil Appeal · 2018 INSC 614Decided 17 Jul 2018
Civil Appeal No. 6748 of 2018
Justice Abhay Manohar Sapre · Justice Uday Umesh Lalit

Background

Indian Oil Corporation (IOC) terminated T. Natarajan's petrol-pump dealership after inspections found a cut "totalizer seal" wire used to measure fuel dispensed. Natarajan challenged the termination through arbitration under the dealership agreement; the Arbitrator found the breach was indeed made out but, taking a lenient view, gave Natarajan liberty to approach IOC afresh for restoration of his dealership: a decision the High Court's Single Judge upheld, and which neither side appealed. When Natarajan then made a representation to IOC for restoration, IOC rejected it, and Natarajan challenged that rejection by writ petition; the Single Judge dismissed the writ petition, but a Division Bench of the Madras High Court reversed, wrongly treating the earlier arbitration award as if it had set aside the termination itself and ordering IOC to restore the dealership and fuel supply.

Decision Breakdown

The Supreme Court held that the Division Bench had misread the arbitration award: the Arbitrator had found the breach proven and, in substance, upheld the termination, merely allowing Natarajan the separate liberty to apply afresh to IOC for reconsideration, not a direction that the dealership must be restored. Reconsidering and deciding whether to restore a terminated dealership was IOC's own discretionary administrative decision as the contracting principal, and courts exercising writ jurisdiction cannot sit as an appellate authority over that discretion absent arbitrariness, which was not shown here. Finding IOC's rejection reasoned and not arbitrary, the Court held the Single Judge had correctly dismissed the writ petition, that the Division Bench's reversal was legally unsustainable, allowed IOC's appeal, set aside the Division Bench's order, and restored the Single Judge's dismissal of Natarajan's writ petition.

Lesson Learnt

Courts will not use writ jurisdiction to second-guess a company's reasoned, non-arbitrary business decision on whether to restore a terminated dealership, and a liberty granted in an arbitral award to "apply afresh" for reconsideration is not the same as a direction compelling that the request be granted.

Official source (sci.gov.in)View Judgment (PDF)

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