J&K and Ladakh High Court Rejects Arbitration Plea Against HPCL, Finds No Agreement In Ad Hoc Dealership

The Jammu & Kashmir and Ladakh High Court on 12 May dismissed a petition by Kanta Devi under Section 11(6) of the Arbitration and Conciliation Act, 1996, holding that no valid arbitration agreement existed in relation to an ad hoc petrol pump dealership governed through a temporary arrangement with Hindustan Petroleum Corporation Limited (HPCL).

Justice Rajnesh Oswal held that applying operational terms of HPCL's Standard Dealership Agreement to a temporary arrangement did not amount to incorporation of Clause 66 containing the arbitration clause. The Bench held:

“In view of the law laid down by the Hon'ble Supreme Court of India, this Court has no hesitation in holding that terms and conditions of the Standard Dealership Agreement were not ipso facto incorporated into the communication dated 18.04.2018; rather, they were made applicable solely for the purpose of the outlet's operation. Consequently, the arbitration clause contained in Clause 66 of the Standard Dealership Agreement did not form part of the communication dated 18.04.2018. Had the parties intended to settle disputes through arbitration, they would have explicitly stated so in the 18.04.2018 communication.”

The dispute arose after HPCL terminated the dealership of Gupta Filling Station at Sungal Morh, Jammu, and subsequently deployed ad hoc arrangements to run the outlet.

HPCL appointed Kanta Devi through a communication dated 18 April 2018 to operate the outlet for one year from 15 May 2018, with a possible extension or continuation until appointment of a regular dealer. Kanta Devi contended that HPCL's policy dated 3 December 2003 required continuation of the arrangement until a regular dealer was appointed and barred replacement without formal termination.

During the COVID-19 period, HPCL extended her arrangement till 30 September 2020 but later appointed Ajay Mahajan as the new ad hoc dealer with effect from 1 October 2020. It directed Kanta Devi on 11 September 2020 to hand over possession of the outlet and related assets.

Kanta Devi invoked Clause 66 of the Standard Dealership Agreement and sought appointment of an arbitrator under Section 11(6), relying on the 18 April 2018 communication that extended the Standard Dealership Agreement terms to the outlet's operation.

She had earlier approached the Commercial Court at Jammu under Section 9, where it initially granted status quo on 2 September 2020 but dismissed the petition on 14 December 2020 after holding that no arbitration agreement existed.

Before the High Court, Kanta Devi argued that Clause 13 incorporated the Standard Dealership Agreement, including its arbitration clause, and relied on the Supreme Court ruling in Inox Wind Ltd. v. Thermocables Ltd.

HPCL opposed the plea, arguing that Clause 13 extended only operational terms and did not specifically incorporate Clause 66. It further contended that the ad hoc arrangement automatically ended under Clause 9 of its policy and Clause 7 of the communication upon appointment of a new dealer.

Accepting HPCL's submissions, the High Court held that incorporation of an arbitration clause requires a clear and specific intention to adopt arbitration as the dispute resolution mechanism. The Court observed:

“Had the parties intended to settle disputes through arbitration, they would have explicitly stated so in the 18.04.2018 communication. Instead, by limiting the application of the Standard Agreement to operational matters, the parties indicated a clear intent to exclude the arbitration clause.”

Accordingly, the High Court held that no arbitration agreement existed between the parties and dismissed the petition along with connected applications.

For the Petitioner/Appellant: Senior Advocate Mr. K.S. Johal and Advocate Mr. Karman Singh Johal.

For the Respondents: Senior Advocate Mr. R.P. Sharma and Advocates Mr. Rohit Gupta (for Respondent Nos. 1 to 4) and Mr. Vishal Goel (for Respondent No. 5)