Petrol pump dealer asked arbitrator to raise rent. Supreme Court said: not your job.

The dealer lost his petrol pump. So he asked the arbitrator to jack up the rent on the land from ₹1,750 to ₹35,000 a month. The arbitrator said yes—but the Supreme Court had a different answer.

This was not a case about a fair deal. It was about who gets to decide what a fair deal looks like. When the arbitrator appointed under a dealership agreement decided to rewrite the terms of a separate lease contract—hiking rent, cutting the lease period—the Supreme Court stepped in with a clear message: an arbitrator cannot fix what the parties themselves agreed to, even if the numbers look lopsided.

The inspection report that ended everything

In 2005, Indian Oil Corporation (IOC) leased a plot of land from Mr. Thite. The lease deed, dated 20 September 2005, was a registered document. The deal was simple: ₹1,750 per month for 29 years. The figure was there in black and white, typed into the lease deed clause that fixed the rent. The courtroom fell silent as the bench heard how IOC would set up a petrol pump on that land. The next year, on 15 November 2006, IOC appointed Thite as the dealer to run the outlet under a separate dealership agreement. Two separate agreements—one lease deed, one dealership agreement—each with its own arbitration clause naming different arbitrators.

For a while, things ran smoothly. Then came the inspection in 2008. IOC found irregularities—what the judgment calls "MDG violations" (minimum delivery guarantee violations, meaning the dealer failed to meet the agreed fuel supply targets). The inspection report, a dry document filled with checkmarks and scribbled notes, triggered the termination. The smell of old paper and ink hung in the air as the report was read out. IOC terminated the dealership. Thite lost his pump.

He did not take it quietly.

What the arbitrator did to the rent

Thite invoked arbitration under the dealership agreement. The arbitrator, Mr. B.L. Parihar, appointed by IOC's Director (Marketing), was asked to decide two things: first, whether the termination was valid; second—and this was the twist—whether the lease rent should be raised from ₹1,750 to ₹35,000 per month.

Thite's argument was simple: the low rent was only agreed because he was getting the dealership. Once the dealership was gone, the rent should reflect market rates. The arbitrator agreed—partly. In his award dated 4 November 2010, he upheld the termination but raised the rent to ₹10,000 per month with a 10% increase every three years. He also cut the lease period from 29 years to 19 years and 11 months. The arbitrator's order sheet, a formal record of proceedings, showed the new rent—₹10,000—scribbled into the final decision, the ink still dark against the typed text.

The problem? The arbitrator was appointed under the dealership agreement. The lease deed had its own arbitration clause, which said disputes about the lease would go to the Managing Director of IOC, not to this arbitrator.

Three courts, three different answers

The procedural journey stretched across years. First, the District Judge-3 in Pune, on 29 January 2013, partly agreed with the arbitrator. The rent hike stayed. But the reduction in the lease period was struck down. Both sides appealed to the High Court of Judicature at Bombay.

The High Court, on 11 September 2015, restored the full arbitral award—rent hike and lease period cut both back in place. The respondent's appeal was partly allowed; the appellant's appeal was dismissed. IOC, now facing a tenfold rent increase on land it had leased for 29 years, appealed to the Supreme Court.

The Supreme Court heard the case in Civil Appeal Nos. 837-838 of 2022, arising out of SLP (Civil) Nos. 35970-71 of 2016. The bench—Justice Indira Banerjee and Justice Abhay S. Oka—sat in a courtroom where the air was still, the only sound the rustle of paper as lawyers turned pages. The files on the dais were thick with procedural history, each folder a record of years of litigation.

Why the arbitrator had no business touching the lease

The Supreme Court bench looked at two separate agreements. The lease deed (20 September 2005) and the dealership agreement (15 November 2006) were independent contracts. Each had its own arbitration clause. The lease deed said disputes would go to the Managing Director. The dealership agreement said disputes would go to the Director (Marketing).

The arbitrator was appointed by the Director (Marketing) under the dealership agreement. He had no jurisdiction—no legal authority—to decide anything about the lease. The Supreme Court applied Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 (the provision that allows a court to set aside an award that deals with disputes not covered by the arbitration agreement). The award on rent and lease period, the court said, was "beyond the scope of submission to arbitration."

That was the procedural knockout. But the court did not stop there.

Rewriting a contract is not arbitration

The Supreme Court went further. Even if the arbitrator had jurisdiction—which he did not—the award would still be illegal. Why? Because an arbitrator cannot rewrite a valid contract.

The court cited its own precedent in Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 and Ssangyong Engineering and Construction Company Limited v. NHAI (2019) 15 SCC 131. The principle is straightforward: an arbitral tribunal is a creature of the contract. It exists because the parties agreed to it. It cannot turn around and change the very agreement that gave it life.

The lease deed was executed between two parties who signed with their eyes open. ₹1,750 per month for 29 years was the deal. The arbitrator thought it was too low. That did not matter. The Supreme Court held: "An award that modifies contractually agreed rent or lease period constitutes patent illegality and violates public policy." The words hung in the courtroom air as the bench pronounced them.

Patent illegality (a ground for setting aside an award under Section 34(2-A) of the Arbitration Act) means the error is so obvious that it jumps off the page. Changing a rent from ₹1,750 to ₹10,000 and cutting a 29-year lease to 19 years is not interpretation. It is rewriting.

The fine line between interpretation and rewriting

The judgment draws a careful distinction. An arbitrator can interpret ambiguous contract terms. That is within jurisdiction. But an arbitrator cannot ignore specific terms or substitute their own commercial wisdom for what the parties agreed.

Here, the lease deed was clear. The rent was fixed. The period was fixed. There was no ambiguity. The arbitrator simply thought the deal was unfair. That, the Supreme Court said, is not enough. Courts do not interfere with reasonable interpretations of ambiguous provisions. But they will intervene when contract terms are disregarded entirely.

The court also cited Rahul Yadav v. Indian Oil Corporation Limited (2015) 9 SCC 447, a case where the Supreme Court had already held that disputes under a dealership agreement and a lease deed are separate. The arbitrator in that case had similarly overstepped. Other precedents cited included PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin (2021) SCC Online SC 508, Satyanarayana Construction Company v. Union of India (2011) 15 SCC 101, Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986) 3 SCC 156, and MD Army Welfare Housing Organization v. Sumangal Service (P) Ltd. (2004) 9 SCC 619—all reinforcing the limits of arbitral power.

What this means for every contract

For anyone who signs a commercial agreement—whether a dealership, a lease, or a joint venture—this judgment is a reminder of a basic rule: the arbitration clause in one contract does not give the arbitrator power over another contract, even if the two are connected.

If you want the same arbitrator to handle disputes under multiple agreements, say so explicitly. Draft a single arbitration clause that covers all related contracts. Otherwise, you risk having an award set aside—and paying legal fees for years of litigation.

THE PLAY: When you sign multiple related agreements, ensure they either share a single arbitration clause naming the same arbitrator or keep each dispute in its own lane—because an arbitrator appointed under one contract cannot rewrite another.

The dealer lost his pump. He tried to win back the land at market rent. The Supreme Court said: the arbitrator was not the right person to ask.