M/s Hindustan Petroleum Corpn. Ltd. & Ors. vs M/s Super Highway Services & Anr.

1. This Special Leave Petition involves the

question as to whether the dealership of the

Respondent No.1 had been validly terminated in

accordance with Clause 58 of the Dealership

Agreement executed between the parties on 30th

August, 2003. In addition, it would also have to

be considered as to whether the termination of the 2

Agreement was in keeping with the procedure/

guidelines in conducting Marker Test in retail

outlets.

2. By virtue of the aforesaid Agreement, the

petitioner Corporation entered into an Agreement

with the Respondent No.1 for the retail sale or

supply of petrol, diesel, motor oils, grease and

such other products as might be specified by the

Corporation from time to time, at the premises in

question. The Agreement was to remain in force for

15 years with effect from 30th August, 2003.

However, both the parties would be at liberty to

determine the Agreement without assigning any

reason by giving three months' notice in writing to

the other of its intention to terminate the

Agreement and upon expiration of such notice, the

Agreement would stand cancelled and revoked,

without prejudice to the rights of either party

against the other in respect of any matter or thing 3

antecedent to such termination. It was also

indicated that such liberty would not prejudice the

rights of the Corporation to terminate the

Agreement earlier on the happening of any of the

events mentioned in Clause 58 of the Agreement.

Clause 4 of the Agreement provided that the licence

and permission granted for the use of the outfit

would terminate immediately on the termination of

the Agreement or on any breach of any of the terms

thereof. The relevant portion of Clause 58 of the

Agreement is reproduced hereinbelow :-

"58. Notwithstanding anything to the contrary herein contained, the Corporation shall also be at liberty to terminate this agreement forthwith upon or at any time after the happening of any of the following events, namely:-

(a) If the dealer shall commit a breach of any of the covenants and stipulation contained in the agreement, and fail to remedy such breach within four days of the receipt of 4

a written notice from the corporation in that regard.

(b) .........................................................................................................

(c) .........................................................................................................

(d) .........................................................................................................

(e) .........................................................................................................

(f) .........................................................................................................

(g) .........................................................................................................

(h) .........................................................................................................

(i) If the dealer shall contaminate or tamper with the quality of any of the products supplied by the Corporation.

(j) .........................................................................................................

(k) .........................................................................................................

(l) .........................................................................................................

(m) If the dealer shall either himself or by his servants or agents commit or suffer to be committed by any act which in the opinion of the Chief Senior Regional Manager of the Corporation of the time being at Patna whose decision shall be final, is prejudicial to the interest or good name of the Corporation or its products the Chief Senior Regional Manager shall not be bound to give reason for such decision."

5 3. On 26th May, 2008, a check was conducted at the

outlet of the Respondent No.1 Company, where a

sample of High Speed Diesel (HSD) failed the Marker

Test, which indicated that the same had been

contaminated. On the same day, the petitioner

Corporation's authorized representative, SGS India

Pvt. Ltd. submitted its report on the Marker Test

indicating such contamination. Accordingly, in

terms of the Marketing Disciplinary Guidelines,

referred to hereinabove, on 27th May, 2008, sales

and supplies of all the products from its outlet

were suspended by the petitioner Corporation to the

Respondent No.1 because of the sample failure.

According to the petitioner Corporation, on the

very next day on 28th May, 2008, the Respondent No.1

was given notice that a Nozzle Test of HSD was to

be conducted at the Barauni Terminal on 29th May,

2008. According to the petitioner Corporation, the

Respondent No.1's representative refused to

acknowledge the notice. However, the Area Sales 6

Manager of the petitioner Corporation is alleged to

have informed the Respondent No.1 telephonically of

the Nozzle Test to be conducted on 29th May, 2008,

at its Barauni Terminal. Despite having been given

notice, no one appeared on behalf of the said

respondent when the comparison test was conducted

in Barauni and the same was held at the Barauni

Terminal on 29th May, 2008, in the presence of the

representative of SGS India Pvt. Ltd. (the agent of

the petitioner), the Manager, Barauni Terminal,

Transporter's representative and the petitioner's

Area Sales Manager. Further to the result of the

test, the Respondent No.1 was served with a notice

dated 14th July, 2008, asking it to show cause as to

why its dealership should not be cancelled on

account of the failed Marker Test. According to

the petitioner Corporation, the reply sent by the

Respondent No.1 on 21st July, 2008, was entirely

vague. Immediately thereafter, the respondent No.1

filed a Writ Petition, being CWJC No.11172 of 2008, 7

in the Patna High Court praying for issuance of

appropriate writs to quash the entire proceedings

arising out of the Marker Test. On 9th September,

2008, the petitioner Corporation, upon

consideration of the reply sent by the Respondent

No.1 to the Show Cause Notice, terminated the

Dealership Agreement of the Respondent No.1 under

Clause 58(1) thereof.

4. On 25th September, 2008, a counter affidavit

was filed on behalf of the petitioner Corporation

in the Writ Petition mentioning the refusal on the

part of the Respondent No.1 to acknowledge the

notice dated 28th May, 2008, informing it of the

Nozzle Sample and T/T Retention Sample Test which

was to be conducted at the Barauni Terminal on 29th

May, 2008.

5. On 15th October, 2008, the learned Single Judge

allowed the Respondent No.1's writ petition, upon

holding, inter alia, that mere statement on 8

affidavit that an unsuccessful attempt had been

made to serve the Respondent No.1, was insufficient

for taking such a drastic step such as termination

of the Dealership Agreement. The learned Single

Judge held that even if the Respondent No.1 had

refused to acknowledge the letter, the same could

have been sent to it by registered post and the

testing could have been delayed, as there was no

urgency involved, as, in any event, the pump of the

Respondent No.1 had been sealed. Apart from the

above, the learned Single Judge took note of the

fact that as per the version of the Respondent

No.1, no information had been given to it about the

testing to be conducted at the Barauni Terminal on

29th May, 2008. What also weighed with the learned

Single Judge was that on behalf of the Respondent

No.1 it was asserted that the person who is

supposed to have served the letter on the

Respondent No.1, was not in Barauni on 29th May,

2008, when the same is supposed to have been 9

refused by the representative of the Respondent

No.1. The learned Single Judge was of the view

that since the retesting had been done without

proper notice to the Respondent No.1, as per the

Marketing Discipline Guidelines, the same had

caused severe prejudice to the Respondent No.1 and

the order of termination of the Dealership

Agreement dated 9th September, 2008, could not,

therefore, be sustained.

6. Appearing for the petitioner Corporation, Mr.

U.U. Lalit, learned Senior Advocate, submitted that

the Nozzle Test had been conducted at site in the

presence of the representative of the Respondent

No.1 and also the transporter and samples had been

drawn for testing at site and also for future

testing, in the presence of the parties. Since the

Respondent No.1 failed the Marker Test during the

Nozzle Test, the samples taken earlier were sent to

the Forensic Laboratory at Barauni for cross- 10

checking. Mr. Lalit submitted that notice had been

duly given to both the Respondent No.1 and the

transporter, but that while the representative of

the transporter was present, the Respondent No.1

chose to be absent during the Marker Test in the

laboratory. Mr. Lalit submitted that the Show

Cause Notice issued to the Respondent No.1 on 14th

July, 2008, categorically indicated that the

representative of the Respondent No.1 had refused

to acknowledge the receipt of the notice dated 28th

May, 2008, and that the petitioner Corporation had

no alternative but to proceed with the Marker Test

at Barauni in the presence of the representative of

the transporter. Mr. Lalit submitted that when the

Respondent No.1 failed the Marker Test even in the

laboratory, the petitioner Corporation had no

option but to terminate the agreement with the

Respondent No.1. Mr. Lalit also emphasized the

fact that all the samples had been drawn/collected

not by the employees of the petitioner Corporation 11

themselves, but by its authorized agent, M/s SGS

India Pvt. Ltd.

7. Mr. Lalit then contended that the proceedings

before the High Court in its writ jurisdiction

stood vitiated in view of Clause 68 of the

Agreement between the petitioner Corporation and

the Respondent No.1 which provided for arbitration

in respect of disputes or difference of any nature

whatsoever or relating to any right, liability, act

or omission between any of the parties arising out

of or in relation to the agreement and the same

were to be referred to the sole arbitration of the

Managing Director of the Corporation or of some

officer of the Corporation who might be nominated

by the Managing Director. Mr. Lalit submitted that

without taking recourse to the arbitration clause,

the Respondent No.1 was not entitled in law to move

the writ Court against the order terminating its 12

agreement with regard to operation of the retail

outlet.

8. In support of his submissions, Mr. Lalit

firstly referred to and relied upon the decision of

this Court in Indian Oil Corporation Ltd. vs.

Amritsar Gas Service & Ors. [(1991) 1 SCC 533],

wherein an Award made under the Arbitration Act,

1940, was under challenge and it was held that even

if the clause providing for termination of the

agreement for sale of LPG by Indian Oil Corporation

was not available, the agreement was terminable by

either party under Clause 8 and hence, the only

relief which could be granted was award of

compensation for loss of earning for the period of

notice and not restoration of the distributorship.

9. Reference was also made to the decision of this

Court in Mrs. Sanjana M. Wig vs. Hindustan Petro

Corporation Ltd. [AIR 2005 SC 3454], in which this

Court was dealing with the termination of a petrol 13

pump dealership. In the said case, one of the

objections taken to the writ petition was that the

said jurisdiction had been wrongly invoked since an

alternative remedy was available and questions

relating to the termination gave rise to serious

questions of fact arising out of the contract

between the parties, which, ordinarily the writ

Court would not be entitled to go into. The

Supreme Court went on further to hold that in such

circumstances the writ petition was not the proper

remedy and the refusal of the High Court to

entertain the writ petition on the ground of

existence of an alternative remedy should not be

interfered with. Several decisions on the same

lines, including that of Amritsar Gas Service's

case, were taken into consideration while arriving

at the said decision on being fully conscious of

the fact that only if a question of public law

character was involved, could a writ petition be

entertained in the existing circumstances. 14

10. Mr. Lalit, however, pointed out that a

differing view had been taken by this Court in

State of Himachal Pradesh & Ors. vs. Gujarat Ambuja

Cement Ltd. & Anr. [(2005) 6 SCC 499] in which the

question as to whether the High Court should

interfere under Article 226 of the Constitution,

when an alternative remedy was available, fell for

consideration and it was held that the power

relating to alternative remedy is a rule of self-

imposed limitation. It is essentially a rule of

policy, convenience and discretion and never a rule

of law. It was also held that despite the existence

of an alternative remedy it is within the

discretion of the High Court to grant relief under

Article 226 of the Constitution, though, it should

not interfere if an adequate efficacious

alternative remedy was available. Mr. Lalit also

pointed out that since the Gujarat Ambuja Cement's

case was rendered by a three Judge Bench, in the 15

case of M/s. Ankur Filling Station vs. Hindustan

Petroleum Corp. Ltd. & Anr. being

SLP(C)No.11193/2009, a Bench consisting of two

Judges of this Court was of the opinion that the

question regarding the jurisdiction of the High

Court to entertain a writ petition in a similar

situation and to direct restoration of supply by

itself, may not be a ground to entertain a writ

application, particularly when the remedy of the

petition in such an event may also lie by filing a

civil suit. Accordingly, while issuing notice on

the basis of the earlier view taken by this Court,

it was felt that the matter should be considered by

a larger Bench. The Special Leave Petition was,

therefore, directed to be placed before the Hon'ble

the Chief Justice of India for appropriate orders.

We are informed by Mr. Lalit that the same is still

pending.

16

11. Mr. Lalit submitted that in view of the

failure of the Respondent No.1 to avail of the

alternative remedy available to it, the writ

petition should have been dismissed at the initial

stage.

12. Mr. Lalit's submissions were vehemently opposed

by Mr. Ramesh P. Bhatt, learned Senior counsel, who

pointed out that the entire procedure adopted by

the petitioner had been vitiated on account of the

fact that the notice dated 25th December, 2008,

which was alleged to have been sent by the

petitioner to the Respondent No.1 regarding the

test conducted at the Barauni Terminal had not been

served on the Respondent No.1 and it was,

therefore, completely unaware of the fact that such

a test was to be conducted. Mr. Bhatt also

submitted that it was the stand of the Respondent

No.1 that no Marker Test had, in fact, been held on

26th May, 2008, at the retail outlet itself. The 17

learned counsel pointed out that by letter dated

30th May, 2008, the Respondent No.1 informed the

Senior Regional Manager of the petitioner that

although the representative of S.G.S. India Pvt.

Ltd. had come to the retail outlet on 26th May, 2008

in order to conduct a marker test of the nozzle

sample of MS and HSD from the dispensing unit, such

a test could not be conducted since the retail

outlet was dry in respect of both MS and HSD, which

made it impossible for samples to be drawn from the

nozzles of the dispensing units of the said

products. Similarly, the underground tanks were

also dry and there was hardly any MS or HSD

available in tank Nos.1 and 2 from which samples

could be extracted through the nozzle. Mr. Bhatt

also pointed out several other letters of protest

written on behalf of the Respondent No.1 against

the termination of supply of petroleum products to

the said Respondent and requesting that the same

may be restored immediately.

18

13. Mr. Bhatt then referred to the reply given on

behalf of the Respondent No.1 on 25th June, 2008, to

the show cause notice wherein again the above facts

were reiterated and it was also asserted in no

uncertain terms that the notice regarding the

conducting of laboratory test at the Barauni

Refinery of the petitioner had not been served upon

the respondent. Referring in particular to the

alleged notice dated 28th May, 2008, informing the

Respondent No.1 that the Marker Test was to be held

at the Barauni Terminal on 29th May, 2008, Mr. Bhatt

pointed out that the alleged refusal to acknowledge

receipt by an employee of the Respondent No.1 was

dated 29th May, 2008 itself and it was highly

doubtful as to whether such notice was at all meant

to be served on the Respondent No.1 to enable its

representative to be present at the Marker Test at

Barauni on the same day. It was also pointed out

that upon information which had been taken by the 19

Respondent No.1, Mr. Dilip Kumar Dash, the Area

Sales Manager of the petitioner Corporation, who

was said to have tendered notice to the

representative of the Respondent No.1, was not even

present in Barauni on 29th May, 2008.

14. Mr. Bhatt submitted that in failing to serve

notice on the Respondent No.1 regarding the

conducting of the laboratory test at the Barauni

Terminal, the entire process of decision making

culminating in the termination of the petitioner's

agreement, stood completely vitiated and the said

decision had been correctly set aside by the

learned Single Judge whose decision was not

interfered with by the Division Bench in appeal.

15. Mr. Bhatt submitted that even if the case

sought to be made out on behalf of the petitioner

Corporation regarding refusal of acceptance of

notice by the representative of the Respondent No.1

is accepted, the same could have been sent by 20

registered post with acknowledgement due and the

Marker Test could have been postponed for some time

for the said purpose as there was no immediate

threat to the T/T Samples or the samples at site

becoming contaminated in any way. It was pointed

out that even the ordinary norms relating to

service of notice were not followed in the instant

case and in that regard reference was made to a

similar notice issued to another retail dealer,

made Annexure A-4 to the additional affidavit on

behalf of the Respondent No.1. It was pointed out

that the said letter dated 23rd December, 2008, not

only had a reference number, but was printed and

sent to the dealer concerned, whereas in the

instant case the notice alleged to have been given

to the Respondent No.1 by Shri D.K. Dash was in

hand written script. In addition, the same did not

have any reference number and though dated 28th May,

2008, was alleged to have been tendered on 29th May,

2008, the very date on which the Marker Test was to 21

be held in the Barauni Terminal at 3.00 p.m. Mr.

Bhatt urged that the said notice was obviously

manufactured for the purpose of termination of the

dealership of the Respondent No.1.

16. Having carefully considered the submissions

made on behalf of the respective parties and also

having considered the various decisions referred to

by learned counsel, we are of the view that the

case made out on behalf of the Respondent No.1 is

more probable. Although, the transporter's

representative was present at the terminal at the

stipulated time on 29th May, 2008, that by itself

cannot give rise to a presumption that service had

been effected also on the Respondent No.1, in the

absence of any proof in that regard. Except for

the endorsement on the hand-written notice said to

have been given by Mr. Dash, there is nothing else

on record to even suggest that notice had been sent

to the Respondent No.1 and that the same had been 22

refused. It is also rather difficult to accept

that in respect of a test to be conducted on 29th

May, 2008, at 3.00 p.m., an attempt was made to

serve the said notice on the representative of the

Respondent No.1 on the date of the proposed test

itself. Although, the notice is dated 28th May,

2008, the endorsement alleged to have been made by

the representative of the Respondent No.1 is dated

29th May, 2008, and we would be justified in

assuming that the Respondent No.1 could not have

arranged for being represented at the laboratory in

the Barauni Terminal of the petitioner Corporation

on such short notice. Nothing has been shown by

the petitioner to disprove the allegation made on

behalf of the Respondent No.1 that the notice

alleged to have been tendered to the representative

of the Respondent No.1 was not in the manner and

the form in which such notice is required to be

given to a dealer. It is obvious that the same had

been made out in haste to indicate that service had 23

been attempted on the Respondent No.1.

17. The cancellation of dealership agreement of a

party is a serious business and cannot be taken

lightly. In order to justify the action taken to

terminate such an agreement, the concerned

authority has to act fairly and in complete

adherence to the rules/guidelines framed for the

said purpose. The non-service of notice to the

aggrieved person before termination of his

dealership agreement also offends the well-

established principle that no person should be

condemned unheard. It was the duty of the

petitioner to ensure that the Respondent No.1 was

given a hearing or at least serious attempts were

made to serve him with notice of the proceedings

before terminating his agreement.

18. In the instant case, we are inclined to agree

with Mr. Bhatt's submissions that the High Court 24

did not commit any error in allowing the writ

petition filed by the Respondent No.1 herein, upon

holding that notice of the Laboratory Test to be

conducted at the Barauni Terminal had not been

served upon the Respondent No.1, which has caused

severe prejudice to the said respondent since its

dealership agreement was terminated on the basis of

the findings of such Test. Admittedly the

dealership agreement was terminated on the ground

that the product supplied by the petitioner

corporation was contaminated by the respondent.

Such contamination was sought to be proved by

testing the T.T. retention sample in the laboratory

at Barauni Terminal. The Guidelines being followed

by the Corporation require that the dealer should

be given prior notice regarding the test so that he

or his representative also can be present when the

test is conducted. The said requirement is in

accordance with the principles of natural justice

and the need for fairness in the matter of 25

terminating the dealership agreement and it cannot

be made an empty formality. Notice should be

served on the dealer sufficiently early so as to

give him adequate time and opportunity to arrange

for his presence during the test and there should

be admissible evidence for such service of notice

on the dealer. Strict adherence to the above

requirement is essential, in view of the

possibility of manipulation in the conduct of the

test, if it is conducted behind the back of the

dealer. In the present case, there is no

admissible evidence to prove service of notice on

the respondent or refusal of notice by the

respondent. Further, the notice dated 28.05.2008

which was allegedly refused by respondent, did not

give him adequate time to arrange for the presence

of himself or his representative during the test to

be conducted at 3.00 PM on 29.05.2008. It is also

to be noted that the endorsement regarding the

alleged refusal is dated 29.05.2008 itself. Thus, 26

the termination of the dealership agreement of the

respondent was arbitrary, illegal and in violation

of the principles of natural justice.

19. Although, Clause 68 of the Dealership Agreement

refers to arbitration, it is unfortunate that the

said question was not raised before the High Court.

It is now too late in the day for the petitioner

Corporation to contend that in view of Clause 68 of

the Dealership Agreement, the Respondent No.1 was

not entitled to seek its remedy before the writ

Court. In any event, by filing appeal against the

order of the learned Single Judge, the Petitioner

herein also submitted to the jurisdiction of the

writ Court, without objecting to the same.

20. In the aforesaid circumstances, we are not

inclined to admit the Special Leave Petition, which

is, accordingly, dismissed, without, however, any

order as to costs.

27

________________J.

(ALTAMAS KABIR)

________________J.

(CYRIAC JOSEPH) New Delhi Dated: 19.02.2010.