Petrol pump dealer fired for cheating. Then he asked the arbitrator to double his rent.

He lost his dealership for cheating. So he asked the arbitrator to raise his rent from ₹1,750 to ₹35,000 a month — and the arbitrator said yes.

The arbitrator gave him ₹10,000 a month instead. Plus a 10% hike every three years. Plus a shorter lease. Indian Oil Corporation was now paying five times more for land it could no longer use through the man who had been fired for breaking the rules.

The Supreme Court had one question to answer: can an arbitrator rewrite a contract that has nothing to do with the dispute they were appointed to resolve?

The answer came in Indian Oil Corporation Ltd. v. M/s Shree Ganesh Petroleum Rajgurunagar. The court said: no.

The inspection that ended everything

Indian Oil leased a plot from a man named Mr. Thite. Twenty-nine years. ₹1,750 per month. The purpose was simple: a petrol pump. Thite would run it.

Two separate agreements were signed. A registered lease deed for the land. A dealership agreement for running the pump. Two documents. Two arbitration clauses. Two different arbitrators. The lease deed, a thick document with its signature page bearing the stamp of the Managing Director's office, nominated the Managing Director of IOC as the arbitrator for any lease disputes. The dealership agreement, a thinner file with the Director (Marketing)'s seal, nominated that director for dealership disputes.

Then came the routine inspection. IOC found irregularities — what the judgment calls "MDG violations" (the Marketing Discipline Guidelines that govern how dealers operate). The inspection report, crisp and damning, listed the deviations. The dealership was terminated.

Thite did not accept it.

The dealer's two moves

He challenged the termination through arbitration, as the dealership agreement allowed. That was one move.

The second move: he asked the same arbitrator to increase the lease rent from ₹1,750 to ₹35,000 per month.

The arbitrator — Mr. B.L. Parihar, chosen by IOC's Director (Marketing) under the dealership agreement — heard both requests. His letterhead read "Sole Arbitrator appointed under the Dealership Agreement," a detail that would later prove decisive.

Here is where the story turns strange.

The arbitrator upheld the termination. Thite had lost his pump. But the arbitrator also increased the lease rent to ₹10,000 per month with a 10% increase every three years, and reduced the lease period from 29 years to 19 years and 11 months. The award, dated 4 November 2010, was signed and dispatched. The smell of fresh ink on the pages carried a decision that would travel through three courts over twelve years.

IOC was now paying more rent for a pump it could no longer operate through Thite, on a lease whose terms had been rewritten by a man who had no business touching the lease at all.

The arbitrator overstepped

The lease deed and the dealership agreement were separate. They had separate arbitration clauses. Under the lease deed, disputes went to the Managing Director of IOC. Under the dealership agreement, disputes went to the Director (Marketing).

The arbitrator was appointed under the dealership agreement. He had jurisdiction only over disputes arising from the dealership — not from the lease.

IOC argued this before the arbitrator. It argued before the District Court. It argued before the High Court. Each time, the courts either upheld the rent increase or modified it slightly.

The District Judge in Pune partly allowed IOC's challenge on 29 January 2013 — he deleted the reduction of the lease period but kept the rent enhancement. The Bombay High Court went further on 11 September 2015: it restored the full arbitral award on lease terms, including the reduced lease period. The courtroom in Mumbai fell silent as the judgment was read, the weight of the files on the judge's desk a reminder of the paper trail that had grown over five years.

IOC appealed to the Supreme Court.

The Supreme Court's answer

Justice Indira Banerjee and Justice Abhay S. Oka allowed IOC's appeal in February 2022. The court held that an arbitrator appointed under one agreement cannot adjudicate disputes pertaining to a separate, independent agreement that contains its own distinct arbitration clause nominating a different arbitrator.

The 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 falling within the terms of submission to arbitration). The award that modified the lease rent and period was beyond the scope of what the parties had agreed to submit to arbitration.

But the court went further. It held that an arbitral tribunal, being a creature of contract, is bound to act within the contract's terms. It cannot alter terms of a valid contract executed between parties with their eyes open. An award that rewrites contractual terms — such as enhancing contractually fixed rent — is patently illegal and against public policy. This engaged Section 34(2-A) (patent illegality) and Section 34(2)(b)(ii) (public policy of India).

The court drew a crucial distinction: between failing to act in terms of a contract (which vitiates the award) and an erroneous interpretation of contractual terms (which is an error within jurisdiction and not ordinarily interfered with by courts). This case fell squarely in the first category.

The Supreme Court observed that "an arbitral tribunal, being a creature of contract, is bound to act within contract terms and cannot alter terms of a valid contract executed between parties with their eyes open." The court further held that "an award that rewrites contractual terms is patently illegal and against public policy." These words, recorded in the judgment, anchored the decision in the bedrock principle that arbitrators are not legislators.

The court also relied on a line of precedents including Associate Builders v. Delhi Development Authority, Ssangyong Engineering and Construction Company Limited v. NHAI, and PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin to reinforce the limited scope of judicial interference with arbitral awards while simultaneously affirming that awards exceeding jurisdiction cannot stand.

THE PLAY: Before invoking arbitration, check which agreement contains the arbitration clause — and make sure the dispute you're raising actually arises from that agreement, not from a separate contract with its own dispute resolution mechanism.

The lease that stayed at ₹1,750

The Supreme Court set aside the award to the extent it increased the rent and reduced the lease period. The lease remained at ₹1,750 per month for 29 years. The dealer kept his termination. And the arbitrator's pen, which had rewritten a contract, was put back in its box.

The operative order was precise: the impugned judgment of the High Court was set aside. The impugned judgment of the District Court, insofar as it pertained to lease rent and lease period, was also set aside. The award dated 4 November 2010 was set aside to the extent that the arbitrator increased the monthly lease rent from ₹1,750 to ₹10,000 with 10% increase after every three years, and to the extent the arbitrator reduced the period of lease from 29 years to 19 years and 11 months.

The question now: how many other awards are out there, signed by the wrong arbitrator, rewriting the wrong contract?

This case serves as a cautionary tale for parties who attempt to piggyback unrelated claims onto arbitration proceedings. The distinction between agreements matters. The identity of the arbitrator matters. A single sentence in a contract — "disputes arising out of this agreement shall be referred to arbitration" — defines the entire universe of what an arbitrator can touch. Step outside that universe, and the award, however well-reasoned, collapses.

For Indian Oil, the victory was narrow but definitive. For the dealer, the attempt to extract a better deal through the wrong forum failed completely. And for the arbitration bar, the message is clear: jurisdiction is not a technicality — it is the foundation on which every award rests.