Final Termination Order Not Needed To Invoke Arbitration: Madhya Pradesh High Court

The Madhya Pradesh High Court on 13 May held that a show cause notice proposing termination, coupled with a reply denying the allegations, constitutes a “dispute” sufficient to invoke arbitration, even in the absence of a final termination order.

Justice Pavan Kumar Dwivedi rejected Indian Oil Corporation Limited's (IOCL) objection that the petition under Section 11 of the Arbitration and Conciliation Act, 1996 was premature and appointed Justice (Retd.) Virender Singh as the sole Arbitrator. The Bench held:

“It was for the parties to decide the mode of dispute resolution at the time of execution of the agreement. The respondent agreed for the arbitration as a mode of resolution of dispute with open eyes and without qualifying it with any such condition that the concerned authority must first pass order and supply the same to the applicant in accordance with the guidelines and only thereafter arbitration may be resorted to. No such qualification exists in the arbitration agreement. Thus, the contention of the learned counsel for the respondent that the present application for arbitration is premature is hereby rejected.”

Natural Petroleum entered into a dealership agreement with IOCL for the retail sale of petrol and high-speed diesel. On 14 December 2024 and 2 July 2025, IOCL issued notices seeking explanations from the dealer. Natural Petroleum replied to both notices.

On 25 August 2025, IOCL issued a show cause notice proposing permanent termination of the dealership on the ground that Government land existed between a right of way and the dealer's plot. Natural Petroleum invoked arbitration under Clause 62 of the dealership agreement through a notice dated 6 November 2025. When the parties failed to agree on an arbitrator, Natural Petroleum filed the present petition under Section 11 of the Act.

IOCL opposed the petition and argued that no dispute had arisen between the parties. It contended that the petition was premature because it had only issued a show cause notice and had not passed a final order terminating the dealership. According to IOCL, a mere apprehension of adverse action could not give rise to a cause of action for arbitration.

The Court examined Clause 62 of the dealership agreement and rejected IOCL's objection. It observed that the arbitration clause did not prescribe any particular stage at which a party could invoke arbitration. The central question was whether the show cause notice proposing termination and the dealer's response created a dispute between the parties.

Relying on its decisions in M/s Sahni Fuels v. IOCL and IOCL v. Tatpar Petroleum Centre, in which it held that a show cause notice and a reply denying its allegations may themselves constitute a dispute capable of reference to arbitration, the Court noted that IOCL first sought explanations on specific issues and Natural Petroleum furnished them. After finding the explanations unsatisfactory, IOCL issued a notice proposing termination of the dealership.

Therefore, the Bench noted:

“Thus, there is a clear existence of divergent views on a given issue in the present case, which in view of the aforementioned position of law can be termed as dispute between the parties. As such, this Court is of the considered view that in the present case, the dispute between the parties is very much present and alive.”

Accordingly, holding that the dealership agreement contained a valid dispute resolution clause and that an arbitrable dispute existed between the parties, the High Court allowed the petition and appointed Justice (Retd.) Virender Singh as the sole Arbitrator.