The Bombay High Court set aside an arbitral award passed against Nayara Energy in a dealership dispute involving Mahendra Sales Services, ruling that the arbitrator exceeded contractual and legal limits.
The arbitral tribunal had earlier ordered restoration of the petrol pump dealership and awarded compensation of ₹4 lakh with interest, despite the franchise agreement permitting termination for contractual breach.
The Court held that arbitrators cannot import “notions of fairness and equity” into commercial contracts when express contractual terms clearly govern the relationship between parties.
The judgment reaffirmed that determinable contracts, such as dealership and franchise agreements, are ordinarily incapable of specific performance under Indian law, making restoration orders legally unsustainable.
The Court also observed that the tribunal failed to properly interpret contractual obligations and lacked sufficient evidentiary basis to conclude that Nayara Energy had acted unlawfully in terminating the dealership.
The ruling strengthens the scope of judicial review under Section 34 of the Arbitration and Conciliation Act, particularly in cases involving “patent illegality” or awards contrary to substantive commercial law.
