IOCL 'State' Status Analysis Misplaced In Contractual Dispute: Calcutta High Court Upholds Setting Aside Of Award

The Calcutta High Court has upheld a Single Judge's order setting aside an arbitral award after noting that the arbitrator had entered into constitutional considerations under Article 12 (Definition of State) in a dispute arising purely out of a commercial contract involving Indian Oil Corporation Limited.

It observed that such an approach was misplaced and further held that the arbitrator had rewritten the terms of the contract and awarded damages without any supporting evidence.

A Division Bench of Justices Debangsu Basak and Md. Shabbar Rashidi held that, "Learned Single Judge also noted that, learned Arbitrator embarked upon a discussion as to the applicability of Constitutional provisions as, the respondent is an authority within the meaning of Article 12 of the Constitution of India. Learned Single Judge held that the contract between the parties was voluntarily undertaken and that there was no scope to enter into the arena of infringement of constitutional right as done by the learned Arbitrator."

"In the facts and circumstances of the present case, leaned Single Judge correctly found that, the learned Arbitrator was guilty of re-writing the contract between the parties arriving at a decision which can be termed to be patent illegality and contrary to the established principles of law.", it further added.

The dispute arose from a dealership agreement dated March 8, 2004, under which Tapas Kumar Das was appointed to operate a petrol pump in Purba Medinipur.

On February 9, 2011, a Joint Industry Team inspected the outlet and collected samples of petroleum products being sold at the petrol pump, which were found not to meet the prescribed fuel quality specifications.

Show cause notices dated February 24, 2011 and July 18, 2011 followed, alleging malpractice and violation of contractual conditions, including tampering with the seals of the fuel sample containers.

The dealership was eventually terminated, prompting Das to take the dispute to arbitration. In the second round, the arbitrator, by an award dated July 30, 2018, found the termination unlawful, ordered restoration of the dealership, and granted damages.

That award did not survive judicial scrutiny. On December 23, 2025, a Single Judge of the High Court set it aside under the Arbitration and Conciliation Act, 1996, which led Das to file the present appeal.

Arguing before the Division Bench, Das maintained that the arbitrator had carefully assessed the material on record and was justified in directing reinstatement along with compensation once the termination was found to be illegal.

Indian Oil Corporation Limited, on the other hand, contended that the arbitrator had overstepped the bounds of the contract. It argued that the agreement itself permitted termination and that damages had been awarded without any evidentiary basis.

The High Court found no reason to differ from the Single Judge. It held that the arbitrator had ignored the clear terms of the agreement, which allowed either party to terminate it, and had nonetheless granted reinstatement in a manner contrary to settled legal principles.

The bench also pointed to Clause (3) of the dealership agreement, noting that the award ran afoul of statutory bars under the Specific Relief Act, 1963, which restrict enforcement of contracts that are, by their nature, determinable. On damages, the court was equally clear: there was no material on record to justify the award.

Given the limited scope of interference in such appeals, the court declined to step in and dismissed the challenge.

For Appellant (Tapas Kumar Das): Advocates Samit Talukdar, Debajyoti Datta, Subhasis Bandopadhyay.

For Respondent (Indian Oil Corporation Limited): Advocates Jishnu Saha, Manwendra Singh Yadav, Saswati Chatterjee.