- 1 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE HANCHATE SANJEEVKUMAR MISCELLANEOUS FIRST APPEAL NO.1341 OF 2015 (AA) BETWEEN: M/S FXD PINTO A PARTNERSHIP FIRM HAVING ITS REGISTERED OFFICE AT MISSION STREET, MANGALORE. REP. BY ITS MANAGING PARTNER SRI DAVID J.PINTO AGED ABOUT 65 YEARS S/O LATE FXD PINTO R/A PINTO HOUSE, BOLAR, MANGALORE. …APPELLANT (BY SMT. NEERAJA KARNATH, ADVOCATE SRI. SHRIHARI K., ADVOCATE) AND: 1. HINDUSTAN PETROLEUM CORPORATION LTD., MANGALORE BALA VILLAGE, KATIAPAL MANGALORE REP. BY ITS REGIONAL MANAGER 2. DEPUTY GENERAL MANAGER HINDUSTAN PETROLEUM CORPORATION LTD., SOUTH CENTRAL ZONE III AND I FLOOR, CHANDRALOKA COMPLEX, S D ROAD, SECUNDERABAD – 500 003 Digitally signed by RAMYA D Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 3. GENERAL MANAGER HINDUSTAN PETROLEUM CORPORATION LTD., TALAMUTTU NATARAJAN BUILDING 4TH FLOOR, #8, GANDHI IRWIN ROAD, EGMORE, CHENNAI – 600 008 4. CHIEF EXECUTIVE OFFICER HINDUSTAN PETROLEUM CORPORATION LTD., #17, JAMSHEDJI TATA ROAD, MUMBAI – 400 20 …RESPONDENTS (BY SRI. B.PRAMOD, ADVOCATE FOR R1; R2, R3 AND R4 - NOTICE ARE SERVED) THIS MFA FILED IS U/S 37(1)(b) OF ARBITRATION AND CONCILIATION ACT, AGAINST THE JUDGMENT DATED 16.12.2014 PASSED ON ARBITRATION SUIT NO.3/2012 ON THE FILE OF 1ST ADDITIONAL DISTRICT & SESSIONS JUDGE, D.K, MANGALORE, DISMISSING THE SUIT FILED U/S 34 OF ARBITRATION AND CONCILIATION ACT. THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE HANCHATE SANJEEVKUMAR ORAL JUDGMENT The appeal is filed by the claimants under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as “A & C Act, 1996” for short) questioning the order dated 16.12.2014 passed by the I Addl. District & Sessions Judge, D.K., Mangalore, in - 3 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 Arbitration Suit No.3/2012, thereby, the judgment passed by the Arbitral Tribunal is confirmed. BRIEF FACTS: 2. The respondent - Hindustan Petroleum Corporation Limited (for short ‘HPCL) is the owner of the retail outlet of selling petrol, diesel and other materials and the claimant/appellant is dealer. There was agreement between the claimant and respondents. When this being the fact that the claimant was operating dealership of selling the commodities like petrol, diesel on the intervene night between 31.01.2008 and 01.02.2008 there was leakage in the underground tank, which is meant for storage of the diesel. As per the claimant High Speed Diesel (HSD) was stored in the underground tank and it was leaked due to non maintenance of underground tank by the HPCL. On 01.02.2008 after selling 237 liters diesel, the entire tank exhausted, then coming to know the fact that the diesel was exhausted due to leakage and immediately on the same day i.e., on 01.02.2008 the - 4 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 claimant has telephonically informed to the respondent/HPCL and also has written letter to the respondents/HPCL informing about the leakage and exhaustion of the diesel. As per claimant it was communicated and this communication was received by the HPCL and subsequently, the officials of HPCL had conducted the enquiry and survey and confirmed that there was leakage in the underground tank. Therefore, the claimant asked the monetary compensation of reimbursement of the diesel for having purchased, but it was declined and as per clause in the arbitration agreement the case was referred to the Arbitrator and the Arbitrator has dismissed the claim petition and also dismissed the counter claim of the respondents for claiming costs and other charges. 3. Being aggrieved by the dismissal of the claim petition by the learned Arbitrator, the claimant has filed Arbitration Suit No.3/2012 before the learned District - 5 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 Judge. The learned District Judge has upheld the award passed by the learned Arbitrator. Therefore, being aggrieved by it, the claimant has preferred this appeal invoking Section 37 of the A & C Act, 1996. 4. The learned Arbitrator has assigned the reason for dismissal of the claim petition that there is no direct evidence to establish the incident of leakage. The underground tank is not available for inspection and nobody could be faulted for this situation. Further observed that, subsequent to the alleged incident of leakage, the retail outlet itself had to be surrendered to the landlord, pursuant to the order of this Court in an eviction case and with the intervention from Pandeshwar Police Station, Mangalore. The claimant and respondent were also aware that the underground tank will not be accessible to them after surrender of site to the landlord and to resolve the dispute then and there itself. The claimant could have raised the dispute, but did not do so. Therefore, formed opinion that the claimant has not - 6 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 proved that there was leakage and also observed that how valuation was made regarding loss sustained. Hence, on these reasons dismissed the claim of the claimant, which is upheld by the learned District Judge. 5. Assailing the dismissal of the claim by the learned Arbitrator and upholding the dismissal of the claim, the claimant by filing the appeal has raised several grounds and learned counsel for the appellant has argued in consonance with the grounds raised in the memorandum of appeal that the award is perverse in nature as the respondent have confirmed the leakage in the underground tank and diesel was exhausted. When this being the undisputed fact by the respondent, therefore, dismissal of the claim is perverse in nature. Thus, it is amenable for interference by this Court under Section 37 of A & C Act, 1996. 6. On the other hand, learned counsel for the respondent/HPCL submitted that as on 31.01.2008 and 01.02.2008 the storage of diesel was 5364 liters and the - 7 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 sale made was 237 liters, but there is no evidence to prove that there was leakage and the balance diesel was lost. Further submitted that as per Sections 34 and 37 of A & C Act, the scope to make interference with the award passed by the learned Arbitrator and order passed under Section 34 are very minimal as consideration of the appeal cannot be equated with the regular appeal. Therefore, none of the grounds attracted to make interference with the award passed and to the order passed by the District Judge. Therefore, the appeal is liable to be dismissed. 7. Learned counsel for the respondent/HPCL also submitted that as per Clause 25 of the agreement between the claimant and respondent the dealer alone is responsible for all loss, contamination, damage or shortage of or to the products, whether partial or entire, and no claim will be entertained by the Corporation. Therefore, under any circumstances except in cases where the Corporation is satisfied that loss arose from leakage from the underground tanks or pipes, which the dealer - 8 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 could not reasonably have discovered and of which the dealer gave immediate notice in writing to the Corporation on discovery. The Corporation will consider compensation only from the date of receipt of notice till leakage is rectified. Therefore, as per this clause the claimant is not entitled for any compensation. Thus, justified the arbitral award passed by the learned Arbitrator and order passed by the learned District Judge. 8. Learned counsel for the respondent/HPCL in support of his argument relied on the decision of the Hon’ble Supreme Court in the case of Punjab State Civil Supplies Corporation Limited and Another Vs. Sanman Rice Mills and Others reported 2024 SCC Online SC 2632. 9. After hearing the rival submissions made by both the learned counsel, the following point arises for consideration: - 9 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 “Whether, under the facts and circumstances involved in the case, the claimant proves that there was leakage in the tank and has sustained loss of 5364 liters of diesel. Thus, entitled for damages of Rs.1,89,939/-?” 10. There was agreement between the claimant and respondent and that the respondent is the owner of the structures above the land and the appellant/claimant is the dealer as per the agreement between the claimant and respondent. It is also not disputed that the entire maintenance and supervision of the structures and equipment lies with the HPCL Company. The claimant is the mere dealer appointed by the HPCL Company as per the agreement. It is the grievance of the claimant that on the intervening night between 31.01.2008 and 01.02.2008, there was leakage in the underground tank in which high speed diesel was stored and it was discovered on 01.02.2008 that after selling 237 liters of diesel the entire diesel was exhausted. Then immediately the - 10 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 claimant has intimated this to the HPCL official and also by writing letter to the respondent-HPCL official. Before the learned Arbitrator, letter dated 01.02.2008 was produced addressing to the respondent-HPCL official regarding leakage in the turbo underground tank, which is sent through the registered post and it is received by the respondent official and the acknowledgment for having sent this notice through the registered post is produced. Further the Quality Control Wing of the respondent-HPCL official have conducted inspection and the inspection report is produced and it is earmarked in the standard operational form OMCRO audit report that the turbo jet tanker leakage is since February, 2008 informed and confirmed with sales officer Mr. Chandrashekar. Therefore, this is the report of HPCL confirming that there was leakage in the month of February, 2008. 11. Further it is also reported that the said register and stock register is checked since the date 01.02.2008 - 11 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 and confirmed with the sales officer and reported that turbo jet tank No.1 is not in use. This audit report of the official confirms that since the date 01.02.2008 the turbo jet tank No.1 is not in use. Therefore, it is proved that there was leakage in the turbo jet tank, in which, high speed diesel stored was exhausted due to leakage. When this being the fact proved, as per the clause in the agreement whether the claimant is entitled for compensation or not is to be considered. 12. The learned Arbitrator in its award has observed by mentioning the clauses. As per Clause 25 in the agreement, the Corporation will consider the compensation only from the date of receipt of notice till leakage is rectified. Clause 25 reads as follows: “Clause 25: The dealer shall be responsible for all loss, contamination, damage or shortage of or to the products, whether partial or entire and no claim will be entertained by the corporation therefore under any circumstances except in cases where the corporation is satisfied that loss arose from leakage from the underground tanks or pipes - 12 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 which the dealer could not reasonably have discovered and of which the dealer gave immediate notice in writing to the corporation on discovery. The corporation will consider compensation only from the date of receipt of notice till leakage is rectified.” 13. Though, as per Clause 25, the dealer is responsible for all loss, contamination, damage or shortage of or to the products, but in exceptional cases where the Corporation is satisfied that loss arose from leakage from the underground tank or pipe which the dealer could not reasonably have discovered and of which the dealer gave immediate notice in writing to the Corporation and discovery, therefore, the Corporation will consider for compensation in case there is loss arises from leakage from the underground tanks which the dealer could not reasonably have discovered. Here the case of the claimant that on the intervening night on 31.01.2008 and 01.02.2008 there was leakage and on 01.02.2008 the entire stock of diesel in the underground tank was exhausted after selling 237 liters of diesel. As per the sales - 13 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 register maintained during the course of business, it is proved that on 31.01.2008 there was stock of 5500 liters of diesel and after selling 237 liters of diesel, the stock remained was 5364 liters of diesel. The tank No.1 was not in use as it is found from the audit report as discussed above due to leakage. Therefore, there was leakage in the underground tank, and it is because of not maintaining the same properly and lack of sufficient supervision. 14. When there is leakage in the underground tank, the dealer could not discover the same unless exhaust of diesel due to leakage. Therefore, as per this clause as discussed above, the dealer discovered the leakage on 01.02.2008 noticing that after sale of 237 liters, the entire diesel was exhausted. Therefore, as discussed above through the letter dated 01.02.2008, the claimant has intimated regarding leakage to the HPCL official on the very same day. Therefore, the claimant is entitled for compensation for having sustained loss due to leakage of - 14 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 underground tank, for which, the claimant could not be held responsible. Also the learned Arbitrator has discussed regarding clauses in the agreement, which is extracted as under: “While Clauses 13, 14, 15 & 16 of DA outlines, in general, the mutual roles/responsibilities of the corporation (HPCL) and the dealer (Claimant), the dispute in hand squarely falls within the purview of Clause 25 of the DA. As per this provision, read with clause 24, the following position clearly emerges: (a) The ownership of the product has already passed on to the dealer (the Claimant) at the time of delivery of the product (b) The corporation (the Respondent) shall not be responsible for loss or shortage thereafter. (c) The dealer (the Claimant) shall be responsible for all loss, contamination damage or shortage of or to the products, whether partial or entire. (d) No claim will be entertained by the corporation therefor under any circumstances Exceptions to (d) are : (1) cases where the corporation is satisfied that loss arose from leakage from the underground tanks or pipes which the dealer could not reasonably have discovered and of which the dealer gave immediate notice in writing to the corporation on discovery. - 15 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 (2) The corporation will consider compensation only from the date of receipt of notice till leakage is rectified. 15. There is exception regarding not entertaining the claim and one of the exception is; cases where the Corporation is satisfied that loss arose from leakage from the underground tank or pipe, which the dealer could not reasonably have discovered and of which the dealer gave immediate notice in writing to the Corporation on discovery. This exception clause is not applicable to the claimant for entitling the compensation. When this being the fact and clause in the agreement, the learned Arbitrator is not correct in dismissing the claim of the claimant. Therefore, when the award passed is found to be perverse in nature, which means contrary to the evidence on record, then certainly, it is amenable for interference as per Section 34 of A & C Act and if such dismissal of the claim as per award is confirmed, then it could be amenable for interference as per Section 37 of A & C Act. - 16 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 16. The Hon’ble Apex Court in the case of Punjab State Civil Supplies Corporation Limited (stated supra) has summarized the principle of law regarding applicability of legality in considering the appeal under Section 37 of A & C Act, wherein at paragraph Nos.20 and 21 reads as follows: “CONCLUSION: 20. In view of the above position in law on the subject, the scope of the intervention of the court in arbitral matters is virtually prohibited, if not absolutely barred and that the interference is confined only to the extent envisaged under Section 34 of the Act. The appellate power of Section 37 of the Act is limited within the domain of Section 34 of the Act. It is exercisable only to find out if the court, exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. The Appellate Court has no authority of law to consider the matter in dispute before the arbitral tribunal on merits so as to find out as to whether the decision of the arbitral tribunal is right or wrong upon reappraisal of evidence as if it is sitting in an ordinary court of appeal. It is only where the court exercising power under Section 34 has failed to exercise its jurisdiction vested in it by Section 34 or has travelled beyond its jurisdiction that the appellate court can step in and set aside the - 17 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 order passed under Section 34 of the Act. Its power is more akin to that superintendence as is vested in civil courts while exercising revisionary powers. The arbitral award is not liable to be interfered unless a case for interference as set out in the earlier part of the decision, is made out. It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view which is also a possible view is a better view according to the appellate court. 21. It must also be remembered that proceedings under Section 34 of the Act are summary in nature and are not like a full- fledged regular civil suit. Therefore, the scope of Section 37 of the Act is much more summary in nature and not like an ordinary civil appeal. The award as such cannot be touched unless it is contrary to the substantive provision of law; any provision of the Act or the terms of the agreement.” 17. When the award passed is found to be perverse in nature, certainly it is amenable for interference. Therefore, the award passed by the learned Arbitrator and consequent confirmation of such award is liable to be interfered. Therefore, the claimant has proved that there was leakage in the underground tank and due to which, the claimant has suffered loss. - 18 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 18. Regarding quantification of compensation is concerned, the claimant in the claim petition as per para 5 has specifically stated that the claimant sustained loss of Rs.1,89,939/-, but the claimant is not able to show as to how this quantification is done for having lost 5364 liters of diesel. If this is accepted, then the claimant has sustained loss of Rs.1,89,939/- having lost 5364 liters of diesel, then the claimant has sustained loss of Rs.35.40 per liters, but whether this price is the actual market rate of selling diesel or whether it is purchase rate given by the claimant is not clarified by the claimant. 19. Therefore, the Court has reasonably assessed that the claimant has sustained loss of Rs.1,50,000/-, then the claimant is entitled for compensation of Rs.1,50,000/- from the respondent-HPCL corporation. Thus, the appeal is liable to be allowed in part. 20. Hence, I proceed to pass the following - 19 - HC-KAR NC: 2025:KHC:30608 MFA No. 1341 of 2015 ORDER i. The appeal is allowed in part. ii. The order dated 16.12.2014 passed in Arbitration Suit No.3/2012 by I Addl. District & Sessions Judge, D.K., Mangalore, and also arbitral award dated 11.02.2012 passed by the Sole Arbitrator are set aside. iii. The claimant is entitled for compensation of Rs.1,50,000/- from the respondent-HPCL Corporation. iv. No order as to costs. SD/- (HANCHATE SANJEEVKUMAR) JUDGE DR/PB List No.: 1 Sl No.: 44