Bombay High Court Upholds Award Rejecting LPG Distributor's ₹40 Crore Claim Against Reliance Petro

The Bombay High Court has recently upheld an arbitral award rejecting most of an LPG distributor's nearly ₹40 crore damages claim against Reliance Petro Marketing Ltd. It held that the arbitrator's interpretation of the distribution agreements and the evidence on record warranted no interference.

Justice Kamal Khata held that the award dated March 25, 2021 was neither vitiated by patent illegality nor contrary to the fundamental policy of Indian law.

"Accordingly, this Court is of the considered view that the Impugned Award dated 25th March 2021 is a well-reasoned decision based on a plausible interpretation of the contract and a thorough appreciation of the evidence on record. The Petitioner has failed to establish any ground that would warrant interference under Section 34 of the Arb. Act. The award is not vitiated by patent illegality, nor is it in conflict with the fundamental policy of Indian law."

The dispute arose from three LPG distribution agreements executed in 2002, 2007 and 2012. Zawar Sales Corporation alleged that Reliance Petro Marketing arbitrarily increased LPG prices and later stopped supplies. It claimed the actions caused substantial business losses.

Zawar Sales invoked arbitration by notice in July 2016. A sole arbitrator was appointed in August 2019. In March 2021, the arbitrator rejected almost all the claims but awarded ₹5.62 lakh towards loss of earnings under the 2012 agreement.

The court agreed with the arbitrator that claims arising under the 2002 and 2007 agreements were barred by limitation. It noted the long gap between Zawar Sales' grievance raised in May 2008 and the arbitration notice issued in July 2016. The court also noted that the firm continued accepting supplies and entered into the 2012 agreement without reserving any rights.

Rejecting the challenge to the award, the court held that Zawar Sales was effectively asking it to reassess the evidence.

The court also made it clear that an arbitral award cannot be set aside simply because another view of the evidence or the contract is possible.

The court also upheld the arbitrator's decision not to award the remaining damages sought by Zawar Sales. It observed that "honest guesswork" cannot fill gaps in evidence and can be applied only after the claimant has first established that it suffered a loss.

"The principle of "honest guesswork" relied upon by the Petitioner is not a license to award damages in an evidentiary vacuum. It can be invoked only when the fact of loss is established and only its precise quantification is difficult. Here, the very foundation of the loss claimed was unsubstantiated. While it is true that exact quantification is not always necessary, the existence of loss must first be established on some reliable material."

Finding no patent illegality, perversity or conflict with public policy, the court dismissed the petition.

For Petitioner: Advocates Abhijeet Desai, a/w Arvind Wachunsdar, Mohin Rehpade, Deepesh Ramrakhyan i/by Desai Legal LLP

For Respondent: Advocates Snehalata Paranjpe a/w Rubin Vakil, Gaurav Thakur, Aditi Kambli i/by A.S. Dayal and Associates