Delhi High Court Sets Aside Award Ordering Yamaha To Repurchase Unsold Dealership Stock

Holding that an arbitral tribunal cannot “rewrite the bargain between the parties” or grant relief contrary to the contract, the Delhi High Court on Tuesday upheld the setting aside of an award that had directed India Yamaha Motor Pvt. Ltd. to take back unsold dealership stock and refund its price with 16% annual interest.

Dismissing the dealer's appeal under Section 37 of the Arbitration and Conciliation Act, 1996, a Division Bench of Justices Anil Kshetrapal and Amit Mahajan held that the arbitral award had travelled beyond the terms of the Dealership Agreement.

“The learned Single Judge was justified in holding that the Arbitral Award travelled beyond the terms of the Agreement. The direction to refund the price of stock along with interest was not founded on any contractual stipulation and was premised on considerations extraneous to the Agreement,” the Court observed.

The dispute arose from a Dealership Agreement dated October 10, 2005, under which Divya Ashish Jamwal was appointed as an authorised dealer for Yamaha motorcycles, spare parts and automotive products in the Jammu region. The agreement, valid for three years, defined the relationship as principal-to-principal and contained detailed provisions governing termination and its consequences.

After disputes surfaced, Jamwal invoked arbitration. During the pendency of the arbitral proceedings, Yamaha terminated the dealership by notice dated June 4, 2007. The statement of claim was amended to seek compensation towards unsold spare parts and a direction requiring Yamaha to take back the stock.

By an award dated April 16, 2012, the Sole Arbitrator granted compensation towards loss of expected profits and establishment costs. The tribunal further directed Yamaha to take back the stocks of spares, accessories, and fittings lying with the dealer and refund the full price thereof along with interest at the rate of 16% per annum with effect from June 4, 2007 till the date of payment, subject to conditions specified in the award.

Yamaha moved the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, challenging the award. On January 30, 2019, a Single Judge set it aside in its entirety, holding that the decision went against the terms of the contract, rested on surmises and extraneous considerations, and was not supported by the evidence on record.

Jamwal appealed under Section 37, contending that the Single Judge had re-appreciated the evidence and substituted the tribunal's findings, and that the arbitral tribunal was empowered to mould relief. It was also argued that the Section 34 petition was barred by limitation.

Rejecting these submissions, the Division Bench reiterated that an appeal under Section 37 is not a rehearing on merits and that the appellate court does not sit in appeal over the arbitral award. The scope of interference, it said, is confined to examining whether the court under Section 34 acted within the parameters prescribed by law.

Examining the Dealership Agreement, the Court found no provision obligating Yamaha to repurchase or take back unsold stock upon termination. While the agreement conferred a discretionary right upon Yamaha to purchase or accept return of stock at its election, it did not create an enforceable right in favour of the dealer.

“No provision of the Agreement, either expressly or by necessary implication, mandates buy-back or restitution of stock at the instance of the dealer,” the Court held.

Referring to Section 28(3) of the Act, the bench emphasised that an arbitral tribunal is required to decide disputes in accordance with the terms of the contract. In the absence of authorisation to decide on equitable grounds, the tribunal could not grant relief based on notions of fairness dehors the agreement, nor could it “rewrite the bargain between the parties.”

On the issue of limitation, the court rejected the dealer's objection, noting that Yamaha had specifically pleaded receipt of the signed award on November 8, 2012, and had filed the Section 34 petition on November 22, 2012, well within the prescribed period.

Finding no jurisdictional infirmity in the single judge's decision to set aside the award, the division bench dismissed the appeal.

For Petitioner (Divya Ashish Jamwal): Advocates Dr. Riju Raj Singh Jamwal, Mr. Manoj.

For Respondent (India Yamaha Motor Pvt Ltd): Advocate Mr. Arpit Dwivedi.