Nayara Energy Ltd vs. Ms Mahendra Sale Services

2026:BHC-OS:11665
CARBP-691-2025-J.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO. 691 OF 2025
Nayara Energy Ltd.
Formerly known as Essar Oil Limited
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having registered office at 5 Floor, Jet
Airways Godrej BKC, Plot No. C-68, G Block,
Bandra Kurla Complex, Bandra East, Mumbai –
400051.
And also having office at
202 Shyam Anukampa, Ashok Marg, C Scheme,
Opposite HDFC Bank Ltd., Jaipur – 302001.
]
]
]
]
]
]
]
]
] ...Petitioner
Versus
M/s. Mahendra Sales Services,
Situated at Khasra No. 26/2, Village Karnawas,
Tehsil Siwana, District Barmer, Through its
Proprietor Smt. Nanita Jain
W/o. Shri Pradeep Jain
Resident of village and Post Bhaiswara, Tehsil
Ahore, District Jalore.
]
]
]
]
]
]
]
] ...Respondent
——————
Mr. Rohan Kelkar, Ms. Aayushi Doshi and Ms. Surbhi Ahuja i/b Indialaw LLP for
Petitioner.
Mr. Prithviraj Choudhari, Ms. Kausar Jahan Sayed and Mr. Aansh Desai i/b
Pythagoras Legal for Respondent.
——————
Coram : Sharmila U. Deshmukh, J.
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Reserved on : 10 April, 2026.
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Pronounced on : 6 May, 2026.
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Judgment :
1. By this Petition filed under Section 34 of Arbitration and
Conciliation Act, 1996 [for short, “the Arbitration Act” ], the challenge
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is to the Award dated 18 January, 2023 passed by the learned sole
Arbitrator in Arbitration Case No. 1 of 2015.
2. Briefly stated the facts of the case are that the Respondent,
which was initially the sole proprietorship firm of one Mahendra
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Bagrecha, was appointed as a franchisee of the Petitioner on 30 May,
2005 to operate a retail motor fuel filling service station, which was a
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Dealership Agreement. The appointment letter of 30 May, 2005 sets
out broadly the terms of the franchise appointment and states that the
final and complete set of terms are set out in the draft Franchise
Agreement and draft Lease Deed attached to letter of appointment.
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On 21 October, 2005, Lease Deed was executed between the said
Mahendra Bagrecha and the Petitioner in respect of the land owned by
Mahendra Bagrecha at Rajasthan. The Lease Deed sets out that the
Petitioner desires to set up the retail outlet/storage depot/retail
station on the demised premises which the Lessor has permitted on
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the terms and conditions set out therein. On 10 April, 2006, the
Petitioner and Mr. Bagrecha executed the Franchise Agreement on the
terms and conditions set out therein. The essential terms of the
franchise agreement were that Mr. Bagrecha will bear all costs of
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constructions/setting-up operation of retail outlet as per the
company’s standards and specifications, to promote sales of the
Petitioner’s products to the satisfaction of the company, to achieve the
sales target as may be set up by company from time to time, and ,
within period of 12 months of the commissioning of the retail outlet,
the Respondent shall achieve monthly sales of HSD : 100 KL/per
month. The agreement gave right to the Petitioner to terminate the
agreement upon breach of the terms and conditions of the agreement.
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3. On 1 May, 2009, one M.s Nanita Jain submitted an expression of
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interest to the Petitioner to replace Mr. Bagrecha as franchisee. On 21
July, 2009, the Petitioner wrote to the District Supply Officer, Barmer
describing Ms. Jain as the proprietor of Respondent i.e. M/s Mahendra
Sales Service and that the Petitioner has appointed the Respondent as
a franchisee for the subject retail outlet and requested to issue the
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DSO license to the Respondent. On 28 July, 2009, the Petitioner
delivered a consignment of products to the Respondent.
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4. On 29 December, 2010, by communication addressed to Mr.
Mahendra Bagrecha as well as Ms. Jain, the Petitioner terminated the
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Franchise Agreement dated 10 April, 2006 for contravention of clause
14(b) of the Franchise Agreement for failing to meet the minimum sale
quantity as per the sales target provided. It was stated that by letter
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dated 19 December, 2008, they were called upon to improve the
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operation of the retail outlet and to achieve the minimum sales target
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as per the contractual obligation latest by 23 December, 2008 which
has not been done. It was further stated that Ms. Nanita Jain
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purportedly new proprietor of firm was called upon by letter dated 4
February, 2010 to execute Lease Deed and Franchise Agreement who
simply evaded the execution of the same and no steps have been taken
to initiate the sale from retail outlet.
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5. On 16 June, 2012, legal notice was sent by Ms. Jain contending
that Mahendra Bagrecha did not start the retail outlet and therefore,
the Respondent was called upon to start the retail outlet and she was
assured that she will not be required to obtain the land as there was
already land lease was for period of 20 years. It was further stated that
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on 8 May, 2009, Mahendra Kumar Bagrecha executed Declaration-
cum-indemnity agreeing for induction of new proprietor of the said
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firm/retail outlet and submitted a letter dated 8 May, 2009 to the
Petitioner for approval to reconstitute the proprietorship firm.
Mahendra Kumar Bagrecha agreed to surrender his leasehold rights
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and Deed of Cancellation of Lease was executed on 10 July, 2009
between Mahendra Kumar Bagrecha and Petitioner and subsequent
thereto, the land was purchased by Ms. Jain by registered Sale Deed on
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23 July, 2009. The license to carry out the business was issued on 24
July, 2009. Despite several attempts, the Franchise Agreement and
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Lease Deed in respect of retail outlet was not executed in favor of
Respondent and the Petitioner stopped the supply of petroleum
product at the retail outlet. It was stated that before terminating the
Franchise Agreement, no notice or opportunity of hearing was given to
the Respondent.
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6. The letter was responded by the Petitioner on 14 July, 2012
denying privity of contract with Ms. Jain. It was contended that the
sole proprietorship firm of Mr. Bagrecha was appointed as franchise
and no formalities were completed by Ms. Jain to replace Mr. Bagrecha.
Ms. Jain evaded execution of the requisite documents and the
franchise agreement was terminated for serious breach of terms and
conditions.
7. An application came to be filed under Section 11 of the
Arbitration Act seeking appointment of Arbitrator and the sole
Arbitrator came to be appointed. The Respondent filed the statement
of claim seeking various monetary claims towards purchase of land,
expenses borne towards purchase of machinery of petrol pump and
other equipments, loss of earning, lease rent etc aggregating to Rs.
45,14,816/-.
8. The Petitioner filed the statement of defense contending that
Ms. Jain was requested to be considered in place of Mahendra
Bagrecha on the same terms and conditions applicable to the then
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existing retail outlet and the understanding between Ms. Nanita Jain
and Mr. Bagrecha was to operate the retail outlet as per the existing
terms and conditions i.e. as is and where is basis. There were oral
assurances by Ms. Jain acting on behalf of Mahendra Bagrecha that she
would execute all required documents as per the earlier Franchise
Agreement. There was no franchise agreement between the Petitioner
and Ms. Jain and the business of retail outlet was carried out by
Mahendra Bagrecha for the firm. The retail outlet was un-operational
for many years despite repeated follow-ups and the minimum sales
target was not achieved which was communicated vide various letters.
The monetary claims were denied as being untenable. Counter claim
was filed claiming compensation.
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9. On 17 August, 2016, the Arbitral Tribunal permitted the
Respondent to amend the statement of claim by adding specific prayer
to set aside the termination letter which was duly amended. The issues
which were framed and Award passed is reproduced hereinbelow :

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10. Learned counsel appearing for Petitioner would submit that
there was no privity of contract between the Petitioner and the
Respondent as there was no Franchise Agreement entered into
between the parties. He submits that the finding of the learned
Arbitrator that the Respondent was entitled to compensation for loss
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of investment due to non-functioning of petrol pump from 28 July,
2009 and for the machinery is contrary to the terms of the Franchise
Agreement which provides for the franchisee to bear the costs for
operationalization of retail outlet. He submits that the finding on
compensation is based on no evidence and is therefore, open to
challenge under Section 34(2)(b)(ii) and Section 34 (2A) of Arbitration
Act. He submits that the finding that the termination letter was illegal
is based on the distinction drawn between state authority and private
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corporation by applying the principles of natural justice. He submits
that the termination letter is set aside for reason of failure of
principles of natural justice which is contrary to substantive Indian law
as the notion of fairness and natural justice cannot be read into a
commercial contract. He submits that the terms of the contract did not
provide for issuance of prior show-cause notice for termination. He
would further submit that the learned Arbitrator has held that the
consequence of shortfall in sales target is by reason of default on part
of the Petitioner to supply petroleum products, which is not based on
any pleading or evidence and is contrary to obligation imposed on the
franchisee to place order in writing and to ensure that the retail outlet
does not run dry at any time except for the reason strictly attributable
to the Petitioner.
11. He submits that the contract being determinable, there could be
no restoration of Petitioner’s dealership agreement. He submits that in
case of breach of contract, the remedy is damages, whereas in the
present case, the Learned Arbitrator has granted damages as well as
restored dealership agreement which could not have been done. In
support, he relies upon the following decisions :
1
(i) Associate Builders vs. Delhi Development Authority
2
(ii) Assistant Excise Commissioner vs. ISSAC Peter
1 (2015) 3 SCC 49.
2 (1994) 4 SCC 104.
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(iii) Purvankara Projects Ltd. vs. Hotel Venus International
3
and Others
4
(iv) Indian Oil Corporation Ltd. Amritsar Gas Service
5
Canara Bank vs. Ajithkumar G.K.
12. Per contra , learned counsel appearing for Respondent submits
that the Award does not suffer from any perversity and is not patently
illegal or against the public policy of India. He submits that the
Petitioner has failed to expressly state under which ground of Section
34(2) of the Arbitration Act the present Petition is preferred. He would
submit that during the oral arguments, learned counsel for Petitioner
has fairly conceded as to the supply of product by the Petitioner to the
Respondent and hence, existence of privity of contract requires no
further consideration and there is valid existence of the contract. He
submits that insofar as the termination of the contract is concerned,
the Learned Arbitrator has held that termination is illegal as there is
breach of principles of natural justice as Petitioner has not given notice
to the Respondent prior to the termination of the agreement. He
points out to clause 19 of the Franchise Agreement provides that the
Agreement is terminable forthwith however, it is not terminable at will
or without cause. He submits that even accepting that there was no
3 (2007) 10 SCC 33.
4 (1991) 1 SCC 533.
5 2025 SCC OnLine SC 290.
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requirement to give prior notice to the Respondent does not mean
that the Agreement could have been terminated though no grounds
exist. He points out the letter of termination which cites various
reasons pertaining to the period when the present proprietor of the
Respondent had not stepped in the firm. He submits that clause 2.6
read with clause 14(c)(i) of the Franchise Agreement constitutes proper
mechanism and remedy for failure to meet sales target in the form of
reducing return of investment and does not envisage the termination
of Franchise Agreement. He submits that the Award not being
severable even if the finding as to the restoration of the dealership is
held to be illegal, the impugned Award cannot be partly set aside. He
submits that the view taken by the Learned Arbitrator is a plausible
view and there is no perversity demonstrated.
13. He submits that the Award of Rs. 4,00,000/- plus interest was for
the reason that the Respondent had invested in the retail outlet and
therefore, the Learned Arbitrator has correctly held that the
termination of dealership resulted in loss of claim and therefore,
Respondent would be entitled to the compensation for the same. In
support, he relies upon the following decisions :
(i) Mr. Mahendra Sales Service vs. Essar Oil
6
Limited
(ii) Dyna Technologies Pvt. Ltd. vs. Crompton
6 Order dated 16.10.2014 in SB Civil Misc. Arbitration Application No. 16/2013.
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7
Greaves Limited
(iii) Gayatri Balasamy vs. ISG Novasoft
8
Technologies Ltd.
14. Rival contentions now fall for determination.
15. Insofar as the privity of contract between the Petitioner and
Respondent is concerned, the record indicates that subsequent to the
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submission of expression of interest by Ms. Jain on 1 May, 2009, the
Deed of Cancellation of Lease was executed between the Petitioner
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and Mr. Bagrecha on 10 July, 2009, a communication was addressed
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on 21 July, 2009 by the Petitioner to the District Supply Officer
referring to Ms. Jain as proprietor of M/s Mahendra Sales Service and
franchisee of the Petitioner and there is an admitted delivery of
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consignment of product to the Respondent on 28 July, 2009. The
material on record establishes the privity of contract between the
Petitioner and the Respondent.
16. The learned Arbitrator framed the necessary issue as regards the
existence of the contract and noted that the expression of interest
submitted by Ms. Nanita Jain requested for replacing the franchisee to
run the petrol pump business in future and a request was also made for
admitting new partner the Nanita Jain in new franchise firm of
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Mahendra Sales Service on 8 May, 2009 and Declaration-cum-
7 (2019) 20 SCC 1.
8 (2025) 7 SCC 1.
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Indemnity was also submitted on the same date.
17. Perusal of Declaration-cum-Indemnity by Mr. Bagrecha shows
that for personal reasons, Mahendra Kumar Bagrecha being a
proprietor of the firm is willing to resign out of his own free will and
without any force or coercion and that Ms. Nanita Jain is willing to be
inducted as new proprietor in the firm. The learned Arbitrator has
rightly considered the conduct of the parties to hold that the contract
existed between the Petitioner and the Respondent. The filing of
declaration-cum-undertaking is in consonance with the Franchise
Agreement which was entered into between the Petitioner and
Mahendra Bagrecha which required an approval in case of change of
constitution under clause 14(q) of the Franchise Agreement. As learned
Arbitrator has rightly considered the terms of the contract, the
material produced on record and the conduct of the parties by which
the Respondent was permitted to step into the shoes of the erstwhile
franchisee, the issue has been rightly decided by learned Arbitrator.
18. By the impugned Award, the Learned Arbitrator has awarded Rs
4,00,000/ towards loss of investment and depreciation to the
machinery and equipment on account of closure of the petrol pump
since 2009 along with interest. The termination of the franchise
agreement was held to be illegal and was quashed and set aside and as
a consequence the dealership was restored.
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19. Dealing first with the aspect of termination, the termination
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letter dated 29 December, 2010 cites contravention of Clause 14(b) of
the franchise agreement which imposed an obligation on the
franchisee to promote the sale of the company’s product and achieve
sales target as set out by the company from time to time. As per the
franchise agreement, it was specifically agreed that the monthly sales
of MS/HSD viz MS : Nil, HSD : 100 KL/per month will be achieved within
period of twelve months of commissioning of retail outlet. The
termination letter makes specific reference to the various
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communications addressed by the Petitioner to the franchisee on 29
th th
December, 2008, 7 February, 2009 , 28 October, 2009 setting out
that there was no sale of the product from the retail outlet and except
negligible sale of HSD in the month of July, 2009, there was nil sale of
the Company’s products.
20. Though it is sought to be contended that the present
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Respondent was not the franchisee at the time when the letters of 29
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December, 2008 and 7 February, 2009 were issued to Mr. Mahendra
Bagrecha, it is not disputed that there was no fresh contract entered
into between Petitioner and Ms. Jain and that the Ms. Jain had
stepped in the shoes of Mr. Mahendra Bagrecha. Resultantly, Ms. Jain
will be governed by the same terms and conditions of the franchise
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agreement dated 10 April, 2006 and will be liable for the breach of
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contractual obligations even for the period prior to her induction as
proprietor of M/s. Mahendra Sales Service. The Learned Arbitrator has
observed in paragraph 80 that initially the investment was made by Mr.
Bagrecha, however, Ms. Jain had purchased the entire assets with its
liabilities and she is entitled to get the same treatment, which was to
be meted out to Mr. Bagrecha, had it been a case of termination of
dealership of M/s Mahendra Sales Service (Proprietor Mr. Mahendra
Bagrecha). It cannot be accepted that Ms. Jain can distance herself
from the defaults committed by the firm while at the same time claim
benefits under the agreement as would be claimed by Mr. Bagrecha.
For all purposes, Ms. Jain stepped into the shoes of Mr. Bagrecha and
would be liable for the past defaults. No submission was canvassed
before this Court and no material has been demonstrated before this
Court which would establish that the minimum sales target was
achieved by the Respondent.
21. The impugned Award records the submission on behalf of the
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Respondent that the Respondent was supplied products only on 28
July, 2009 and later despite repeated requests, the petroleum
products were not supplied. The submission was that termination is
not the consequence for shortfall in the sales target and only
consequences is reduction in return on investment. The finding of the
learned Arbitrator in paragraph 106 is as under:
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“106. Having heard the submissions advanced by both the
counsels representing the parties, and after going
through the entire record and the judgements relied
upon with regard to the plea of termination of the
dealership, I am of the view that the distinction between
the state authorities and the private corporations cannot
be drawn while applying the principles of natural justice.
The termination order entails evil and civil consequences,
and the non-service of notice to the aggrieved person
before termination of his franchise agreement also
affects the well- established principle that no person
should be condemned unheard. It was the duty of the
respondent to ensure that that claimant was given a
hearing or at least a notice of the proceedings before
terminating his agreement so that she could have stated
in her reply that the consequence of not achieving sale
targets is not a ground for termination as per the
franchise agreement and the lease deed. The contention
and the judgements relied by the respondent are not
applicable in the present facts and circumstances of the
case, and thus, the Tribunal holds that the termination
order dated 29.12.2010 is illegal, and deserves to be
quashed and set aside on the ground that the same is
violative of principles of natural justice.”
22. The learned Arbitrator has not interpreted the terms of the
contract to render a finding that termination is not the consequence of
the shortfall in the sales target and reduction in return of investment is
the agreement between the parties for shortfall in sales. If the learned
Arbitrator would have interpreted the terms of the contract, then the
finding would constitute an error in jurisdiction incapable of being
corrected under Section 34 unless there is error apparent. Instead of
dealing with the submissions and rendering a specific reasoned finding
as to the consequence of shortfall in sales target, the Learned
Arbitrator has applied the principles of natural justice to quash and set
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aside the termination order on the ground that no opportunity of
hearing was given to the Respondent. The terms of the franchise
agreement did not provide for issuance of notice prior to termination.
Clause 19 of the franchise agreement provides for termination of the
Agreement forthwith for breach of the obligations contained in the
Agreement. There is no finding of the Learned Arbitrator that there is
no breach of the contractual obligations by the Respondent or that
Clause 19 is inapplicable.
23. The learned Arbitrator has applied the principles of audi-alteram
partem and has quashed and set aside the termination on the ground
that no hearing was given. The said finding is based on the notions of
fairness and equity and under section 28(3) of the Arbitration Act, the
Arbitral Tribunal is required to take into consideration the terms of the
contract and under Section 28(2), the Arbitral Tribunal shall decide ex
aequoet bono or as amiable compositeur only if the parties have
expressly authorized the Arbitrator to do so. As the notion of fairness
and equity cannot be read into contract dehors the terms of the
commercial contract, the findings of the Learned Arbitrator for
quashing and setting aside the termination is contrary to the
substantive law and hence, stands vitiated.
24. While adjudicating the aspect of restoration of dealership, the
Learned Arbitrator held that after July, 2009 despite several requests
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of the Respondent, the Petitioner chose not to supply the petroleum
products and thus the Respondent cannot be faulted for that. It
further held that the consequence of shortfall in sale targets is not
termination of the dealership and termination was illegal and the
order was passed without following principles of natural justice. It held
that the only consequence which remains is to restore the dealership in
favor of the Respondent. There is no document placed on record by the
Respondent to establish compliance with Clause 14(f),which requires
the franchisee to place orders in writing for purchase of motor spirit
and HSD from the company. No evidence has been led to show that
despite placing orders, there was non supply of the product by the
Petitioner to substantiate that the termination is illegal.
25. Even accepting for sake of arguments, that the termination was
illegal and liable to be set aside, the only consequence for breach of
contract would be damages. The contract was by nature determinable
and Section 14(1)(c) of the Specific Relief Act, 1963 prohibits specific
performance of a contract which is in its nature determinable. The
Learned Arbitrator could not have restored the dealership and the only
remedy was damages. In case of Indian Oil Corporation Ltd vs.
Amritsar Gas Service (supra), the distributorship agreement came to
be terminated. The Learned Arbitrator held that the termination was
not valid and as a consequence granted relief of compensation till
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breach is remedied by the restoration of distributorship. The Hon’ble
Apex Court held that the contract being determinable even on finding
of illegality of termination, the relief of restoration could not have
been granted. The Hon’ble Apex Court applying the terms of the
contract granted compensation of period of notice, which was 30 days
in that case. This Court is informed that the correctness of the decision
is pending before the larger bench. However, the decision will continue
to bind this Court till it is overruled. In present case, even if the
termination was held to be illegal, no relief of restoration of
distributorship could have been granted.
26. The learned Arbitrator has granted compensation for loss of
investment and for the machinery which is in dilapidated condition and
has held in paragraph 82 as under:
“ 82. In such circumstances, I am of the view that Smt. Nanita
Jain is entitled for compensation for the loss of investment
caused to her with regard to non functioning of the petrol
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pump from 28 July, 2009 i.e. for last more than 13 years and
for the entire machinery which is in the dilapidated condition
now. Since there are no pleadings by the respondent
corporation that how the claimant’s claim of Rs 4 lacs is not
sustainable as they have not given any details of the cost of
the machinery, therefore, the claim made by the claimant
needs to be accepted in its entirety. Therefore, I hold that the
claimant is entitled for compensation to the tune of Rs 4 lacs
along with interest @ 6% per annum from the date of last
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supply of petroleum products i.e. 28 July, 2009 till the actual
payment by the respondent.”
27. The award of compensation is based on the solitary reasoning of
absence of pleadings by the Petitioner to dispute the claim for loss of
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investment. The burden was upon the Respondent to prove loss of
compensation. The statement of claim of the Respondent is bereft of
any pleadings as regards the valuation of machinery and the other
equipment and the basis for claims of Rs 4,00,000/-. There is no
evidence led by the Respondent to prove the investment by the
Respondent, the deterioration of the machinery etc. Despite absence
of pleading and evidence, the Learned Arbitrator has awarded
compensation for loss of investment by placing burden upon the
Petitioner to dispute the claim. Even while awarding compensation for
loss of investment, there is no discussion and no reasoning.
28. The finding of Learned Arbitrator is also contrary to the franchise
agreement which imposes an obligation on the franchisee under clause
1(f) to bear all costs of constructions/setting up and operationalizing
the retail outlet. The award of compensation of Rs. 4,00,000/- is based
on no pleading and no evidence and suffers from patent illegality and
is also violative of Section 34(2-A) of the Arbitration and Conciliation
Act, 1996. It also needs to be noted that learned Arbitrator could not
have directed restoration of Franchise Agreement and simultaneously
granted damages holding the termination to be illegal.
29. The learned counsel for Respondent has relied upon the decision
of the Hon’ble Apex Court in the case of Dyna Technologies Private
Limited vs. Crompton Greaves Limited (supra) which sets out the
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contours of Section 34 of the Arbitration Act. There is no quarrel with
the proposition set out in the said decision. Applying the principles
which were laid down in Dyna Technologies Private Limited vs.
Crompton Greaves Limited (supra) to the facts of the case, the Award
in the present case suffers from patent illegality and is in violation of
substantive law which can be interfered under Section 34 of the
Arbitration Act.
30. The decision in the case of Gayatri Balasamy vs. ISG Novasoft
Technologies Limited (supra) was cited in support of decision that
there cannot be any partial modification of the Award which is not
severable. Apart from the fact that in the present case, the Arbitral
Tribunal has granted claims which are independent of each other, the
impugned Award in its entirety is unsustainable and therefore, there is
no question of severance of bad part of the order from the good part.
31. In light of the above, the Petition succeeds. The impugned Award
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dated 18 January, 2023 is hereby quashed and set aside.
32. In view of above, nothing survives for consideration in pending
Applications, if any, and the same stand disposed of.
[Sharmila U. Deshmukh, J.]
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