'Dealership' & 'Lease' Agreements Are Independent Contracts, Disputes Cannot Be Brought Under One Litigation: J&K&L High Court

The Jammu & Kashmir and Ladakh High Court on Monday reiterated that a “Dealership Agreement” and a “Lease Agreement” are independent and distinct contracts, and disputes arising from them cannot be compulsorily brought in a single litigation.

The Division Bench comprising Justice Sindhu Sharma and Justice Shahzad Azeem set aside a writ court order which had directed Indian Oil Corporation (IOC) to either purchase or vacate leased land belonging to a war-widow, holding that the writ petition itself was not maintainable in view of the arbitration clause contained in the lease deed.

In allowing the intra-court appeal against the Single Judge's ruling, the bench added,

“Dealership Agreement” and Lease Agreement”, respectively, are independent and distinct of each other, therefore, such actions need not to be brought in one litigation and, also in absence of any procedural infirmity; violation of rules of natural justice; or violation of any of the rights contained in Part-III of the Constitution, a Writ Petition under Article 226 of the Constitution ought not to be entertained if alternative and efficacious remedy arising out of the instrument (lease agreement) is available”

Background of the Case:

A war-widow, Zareena Akhter, was allotted a petrol pump dealership under the Operation Vijay Scheme for the rehabilitation of war widows. Pursuant to an appointment letter she was granted a retail outlet dealership by IOC. On the same occasion, a lease deed was executed between her and IOC, under which she leased 2 kanals 9 marlas of land to the Corporation for 30 years.

Trouble arose in 2010 when a joint inspection by CBI and Bharat Petroleum's laboratory found adulteration in diesel samples. FIR was registered under the Essential Commodities Act and Petroleum Act, leading IOC to suspend operations and eventually terminate her dealership. Akhter challenged the termination through a writ and during its pendency, she filed another writ seeking termination of the lease so that she could sell the land, citing her deteriorating health and need for urgent funds.

The writ court dismissed the first petition (dealership termination) due to the presence of an arbitration clause but allowed the second (lease termination), directing IOC to either purchase the land or revoke the lease. Aggrieved, IOC filed the present Letters Patent Appeal.

Senior Advocate D. C. Raina, with Advocate Sajjad Ashraf Mir, appearing for IOC, argued that the writ court's order suffered from a jurisdictional error because the lease deed itself contained an arbitration clause (Clause 5(d)), and any dispute was contractually required to be resolved through arbitration. They further contended that the writ petition was barred by Order 2 Rule 2 CPC and principles of res judicata since two separate petitions were filed over related issues.

On the other hand, Advocate Shuja-ul-Haq Tantray, representing respondent Zareena Akhter, argued that since the dealership had already been terminated in 2010 and the land remained unused, it was only fair that she be allowed to revoke the lease and sell the property to fund her medical treatment.

Court's Observations:

Adjudicating the matter, Justice Azeem held that the issues arising from the dealership and the lease were independent of each other and need not be brought in a single litigation. The Court explained,

“The point involved is no more res integra, as it is trite that the 'Lease Agreement' and 'Dealership Agreement' are independent of each other. If the lease deed is treated to have been terminated along with the dealership, it will lead to a situation which does not flow from the interpretation of the instruments.”

Relying on Rahul Yadav v. Indian Oil Corporation Ltd., AIR 2015 SC 2742 and Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463, the Bench reaffirmed that dealership and lease agreements operate separately while dealership is inherently terminable, lease subsists for its fixed term unless otherwise terminated as per its clauses.

The Court rejected IOC's argument that the second writ petition was barred, clarifying,

“The cause of action arising from both the 'Dealership Agreement' as well as 'Lease Agreement' are distinct and independent of each other, therefore, the plea is liable to be rejected.”

However, the Division Bench found merit in IOC's challenge on the issue of arbitration. Noting Clause 5(d) of the lease deed, the Court emphasized,

“Once the parties are signatory to the instrument, they are bound to abide by the contractual obligation. Thus, the specific mechanism provided therein by way of arbitration for adjudication of any dispute or difference, the parties have to adhere to in letter and spirit.”

Referring to Hindustan Petroleum Corp. Ltd. v. Pinkcity Midway Petroleum, AIR 2003 SC 2881, the Court reiterated that when an arbitration clause exists, the Court must relegate parties to arbitration.

The Bench also noted that IOC had even filed an application seeking permission to assign the leased premises to an ad hoc dealer in terms of Clause 4(e) of the lease deed, which showed that the Corporation still intended to use the land lawfully and was not keeping it idle, contrary to the writ court's assumption.

Concluding, the Division Bench held that the writ court's direction to IOC was unsustainable. It categorically ruled,

“The cause of actions based on rights and liabilities arising from 'Dealership Agreement' and 'Lease Agreement', respectively, are independent and distinct of each other, therefore, such actions need not to be brought in one litigation.”

Accordingly, the writ court's judgment which had directed IOC to either purchase or vacate the leased land, was declared unsustainable and therefore set aside. Consequently, the writ petition filed by Akhter seeking termination of the lease agreement was dismissed.

Case Title: Chairman Indian Oil Corporation Vs Zareena Akhter

Mr D. C. Raina, Senior Advocate with Mr Sajjad Ashraf Mir, Advocate For Petitioner

Mr Shuja-ul-Haq Tantray, Advocate for R-1; and Mr Faizan Ahmad Ganie, CGC vice Mr Tahir Majid Shamsi, DSGI for R-2 For Respondent

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