Delhi High Court upholds setting aside of arbitral award that directed buy-back and refund as contrary to dealership contract

A Division Bench of Justice Anil Ksheterpal and Justice Amit Mahajan heard an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 brought by a dealer challenging a Single Judge’s order under Section 34 that set aside an arbitral award directing the manufacturer to take back unsold stock and refund the price with interest. The core question before the Court was whether the learned Single Judge exceeded the limited scope of interference under Section 34 or whether the award travelled beyond the contractual rights and obligations embodied in the Dealership Agreement.

The Court dismissed the appeal and upheld the Single Judge’s conclusion that the Arbitral Tribunal granted relief contrary to the express terms of the contract and based on considerations dehors the agreement. The Court observed that interference under Section 37 was circumscribed and that an appellate court could not re-hear the dispute on merits or substitute its view for that of the Tribunal unless the lower court had committed a jurisdictional error or returned perverse findings. The Court, in its reasoning, observed: "Under Section 28(3) of the Act, the Arbitral Tribunal was required to decide the dispute in accordance with the terms of the contract. In the absence of any express authorisation by the parties to decide the dispute ex aequo et bono or as an amiable compositeur, the arbitral tribunal could not have granted relief founded on notions of equity or fairness dehors the contract, as proscribed by Section 28(2) of the Act. While the tribunal is entitled to interpret the contractual provisions, it is equally well settled that it cannot rewrite the bargain between the parties or grant relief which the contract itself does not contemplate." The Court further noted that the award was "ex facie contrary to the contract" and that the Tribunal relied on "broad notions of fairness" and considerations of alleged dominance without anchoring relief to contractual entitlement.

Background The dispute arose from a Dealership Agreement dated 10.10.2005 under which the appellant was appointed an authorised dealer for the respondent’s motorcycles and spare parts in Jammu. The appellant invoked arbitration and, while proceedings were pending, the respondent terminated the dealership by notice dated 04.06.2007. The claimant amended its claim to seek compensation for unsold spare parts and a direction for the respondent to take back such stock. The Sole Arbitrator by award dated 16.04.2012 directed refund of the full price of stock with interest at 16% per annum from 04.06.2007 and ordered the respondent to collect the stock at its cost.

The Single Judge, in O.M.P. No. 1107/2012, set aside the award under Section 34 on the ground that the reliefs granted were contrary to the express terms of the Dealership Agreement and were founded on surmises and extraneous considerations. The High Court examined Clauses 5, 7, 10, 11 and 12 of the Agreement and held that ownership of goods vested in the dealer upon payment and that the Agreement did not impose an obligation on the respondent to repurchase unsold stock; Clause 12 merely conferred a discretionary right on the manufacturer to purchase or accept returns. The Court reiterated that the arbitral tribunal was bound by Section 28(3) to decide disputes in accordance with the contract and could not grant remedies ex aequo et bono in the absence of express authorisation. The High Court also rejected the appellant’s limitation plea, noting the respondent’s averment that the signed award was received on 08.11.2012 and the Section 34 petition was filed on 22.11.2012. The appeal was dismissed and the order setting aside the award was affirmed.

Case Details: Case No.: FAO(OS)(COMM) 363/2019 Case Title: Divya Ashish Jamwal v. India Yahama Motor Pvt Ltd Appearances: For the Petitioner(s): Dr. Riju Raj Singh Jamwal; Mr. Manoj, Advocates For the Respondent(s): Mr. Arpit Dwivedi, Advocate