M/S.M.P.Fakrudeen Sahib vs Hindustan Petroleum Corporation Ltd on 20 October, 2009

[Cites 16, Cited by 0]

Kerala High Court

M/S.M.P.Fakrudeen Sahib vs Hindustan Petroleum Corporation Ltd on 20 October, 2009

The unsuccessful petitioner in W.P.(C) No.30424 of 2008 is the appellant herein aggrieved by the judgment dated 20.10.2009. The 1st respondent (Hindustan Petroleum Corporation Ltd.) is a company originally registered under the Indian Companies Act, 1913 and deemed to be a company within the meaning of the expression under the Companies Act, 1956. The Company is now a nationalised company, hereinafter referred to as a Company. The further details of the legal status of the company may not be necessary for the present purpose.

2. The appellant and the 1st respondent entered into a memorandum of agreement dated 01.04.1983 by which the appellant herein became a dealer for the retail sale or supply at a specified premises of the various products of the Company specified under the said agreement. The rights and obligations W.A. No. 2923 of 2009 -:2:- of the parties are regulated by the various terms and conditions agreed upon between the parties evidenced by the abovementioned agreement. Though a copy of the agreement is not filed either along with the writ petition or with the appeal, at the time of hearing a copy of the said agreement is placed before us by agreement by both the learned counsel appearing on either side.

3. Clauses 25 and 26 of the said agreement stipulate as follows:

"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 therefor under any circumstances except in cases where the corporation is satisfied that loss arose from leakage from 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, Corporation will consider compensation only from the date of receipt of notice till leakage is rectified.

26. All the products supplied by the Corporation to the Dealer hereunder shall be in accordance with the specifications laid down by the Corporation from time to time. The Dealer shall take every possible precaution against contamination of the Corporation's products by water, dirt or other things injurious to their quality and shall not in any way directly or W.A. No. 2923 of 2009 -:3:- indirectly alter the specifications of the said products as delivered. The Corporation shall have the right to exercise at its discretion at any time and from time to time quality control measures for products marketed by the Corporation and lying with the Dealer the opinion of the Regional Manager for the time being at the Corporation's Regional Office at Ernakulam, as to whether any product of the Corporation has been contaminated shall be final and binding upon the dealer. In the event of the said Regional Manager finding that the contamination has been due to any act or default of the dealer or of his servants or agents, the Corporation shall have the right without being bound to do so, to remove the contaminated product and to destroy or otherwise deal with the same without making any payment therefor to the dealer and without prejudice to the Corporation's right to terminate this Agreement forthwith."

4. Further, Clause 55 of the said agreement in so far as it is relevant for the instant appeal reads as follows:

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

(A) If the Dealer shall commit a breach of any of the covenants and stipulations contained in the agreement, and fail to remedy such breach within four days of the receipt of a written notice from the Corporation in that regard.

(I) If the Dealer shall contaminate or tamper with the quality of any of the products, supplied by the Corporation. W.A. No. 2923 of 2009 -:4:-

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

5. From the above it can be seen that Clauses 25 and 26 obligate the dealer/the appellant herein to maintain the stock of the products supplied by the respondent Company without any contamination and in accordance with the specifications laid down by the Company from time to time. It further obligates the dealer/the appellant to take every possible precaution against the contamination of the product.

6. Clause 55 stipulates that the respondent Corporation shall have the legal authority to terminate the agreement on the happening of anyone of the contingencies specified under the said Clause. Contamination of the products either by an act or omission, either by the dealer or his servants or agents is one of the contingencies specified. W.A. No. 2923 of 2009 -:5:-

7. Under Clause 26 of the above agreement, the respondent Corporation has a right to control the quality or take such measures for controlling the quality of the products supplied by the Corporation which are in the custody of the dealer/the appellant.

8. In exercise of such a right to keep a track of maintenance of the quality of the product supplied by the Company, samples of Petrol (Motor Spirit - MS) and Diesel (High Speed Diesel - HSD) were drawn by the employees of the Company on 26.09.2007. It appears that such samples were subjected to a test by a Mobile Laboratory of the Company and also at the Company's Quality Control Laboratory located at Irumpanam Terminal. The reports of the abovementioned two testing agencies are marked as Exts.P3 and P7. It appears from the abovementioned two reports that one of the tests conducted was the final boiling point of the sample drawn. It appears from the abovementioned two documents that the final boiling point was found to be 220o C and 224o C respectively by the abovementioned two agencies. Pursuant to such a result, the W.A. No. 2923 of 2009 -:6:- respondent Corporation issued a show cause notice dated 30.10.2007. The relevant portion of the notice reads as follows:

" As you are aware, the Industry Mobile Lab inspected your outlet on 26.09.2007 and drawn samples of products viz., MS, HSD and Turboject for testing on various parameters such as appearance, colour, density, initial and final boiling point and residue. In the Mobile Lab test carried out on 26.09.2007, the MS sample fail to meet the specifications in Final Boiling Point by recording 224 against the specification of 215oC Max. The Industry Mobile Lab officer collected samples of MS, HSD and Turboject through the pump nozzles for carrying out further test at our Irumpanam Terminal. It was also observed and recorded in the Industry Mobile Test Report that the tanktruck retention samples of MS/HSD/Turboject were not properly collected by you and that the aluminium containers and wooden boxes were not sealed with tags as per the established procedure, and hence the tanktruck retention samples were not collected for testing at our Laboratory. In this connection, please refer to letter Ref. No. CRO/ML/DS-001 dated 26.09.2007 issued by Industry Mobile Lab Officer at the time of inspection which was acknowledged by you. The MS sample drawn from the outlet on 26.09.2007 was tested at our Irumpanam Terminal and the product failed to meet the specification in Final Boiling Point by recording 224oC Max. against the specification of 215oC Max. The reference samples kept at our Irumpanam Terminal pertaining to MS/HSD/ Turboject passed the quality tests. The copies of all the Test Reports are attached for your ready reference." W.A. No. 2923 of 2009 -:7:-

It can be seen from the above that the standard specification of the boiling point is 215o C maximum.

9. The appellant replied the show cause notice on 07.11.2007. After considering the explanation of the appellant, an order dated 21.12.2007(Ext.P4) was passed by the respondent Corporation terminating the agreement between the parties.

10. The appellant herein had earlier approached this Court by filing W.P.(C) No. 14054 of 2008, aggrieved by the abovementioned order of termination on the ground that such a termination was not preceded by a personal hearing. By judgment dated 22.05.2008 a learned Judge of this Court disposed of the writ petition setting aside the Ext.P4 with a further direction to give a personal hearing to the appellant herein and pass a fresh order pursuant to the show cause notice referred to above. Pursuant to the abovementioned direction of this Court an opportunity of hearing was afforded to the appellant and a fresh order terminating the agreement was passed on 01.07.2008(Ext.P7).

W.A. No. 2923 of 2009 -:8:-

11. For the sake of the completion of the narration of the facts we may mention that the appellant purported to prefer an appeal against the said termination order before the Executive Director of the 1st respondent Corporation which was eventually dismissed by an order dated 03.10.2008. Challenging the same the appellant approached this Court by way of W.P.(C) No.30424 of 2008 which was dismissed by the judgment under appeal. Hence the appeal.

12. The learned counsel for the appellant argued that the respondent Corporation is under an obligation to conduct the quality test, such as the one undertaken by the respondent which resulted in the termination of agreement, in accordance with the procedure prescribed under Chapter X of the Petroleum Rules, 2002. The learned counsel further endeavored to demonstrate that the test conducted by the respondent does not conform to the requirements of the abovementioned rules and therefore the conclusion arrived at by the respondent Corporation that there is contamination in the stock maintained by the appellant herein which lead the Corporation to believe that the appellant had W.A. No. 2923 of 2009 -:9:- committed a breach of the terms of agreement, which called for a termination of the agreement is wholly illegal.

13. We are of the opinion that the submission of the learned counsel for the appellant is wholly misconceived for the following reasons. The Petroleum Rules of 2002 relied upon by the learned counsel are rules framed by the Government of India in exercise of the statutory power vested in it under the various provisions of Petroleum Act, 1934. The Petroleum Act, 1934 is an enactment to regulate trade in petroleum. Section 3 of the Act prohibits import, transport or storage of "petroleum" of any variety covered by the Act except in accordance with the rules made under the Act. Section 4 authorises the Government of India to make rules regulating the various aspects of import, storage, transport etc. of petroleum. Section 5 prohibits production, refining and blending of petroleum except in accordance with the rules prescribed by the Government. The

------------------------------------------------------------------------- Section 2(a) "petroleum" means any liquid hydrocarbon or mixture of hydrocarbons, and any inflammable mixture (liquid, viscous or solid) containing any liquid hydrocarbon." W.A. No. 2923 of 2009 -:10:- subsequent provisions deal with the requirement of licensing of various activities specified under the act etc., the details of which may not be necessary. Section 14 deals with the inspection and sampling of the petroleum. Section 14(1) stipulates that the Government of India may authorise any officer by a notification in the official Gazette to enter any place and inspect, take samples etc. Section 14(1) reads as follows:

"14. Inspection and sampling of petroleum.- (1) The Central Government may, by notification in the Official Gazette, authorize any officer by name or by virtue of office to enter any place where petroleum is being imported, transported, stored, produced, refined or blended and to inspect and take samples for testing of any petroleum found therein."

14. Section 14(2) enables the Government of India to make rules with regard to the various aspects of the power of entering and testing by the officer referred to under sub section (1). Section 15 mandates that a standard apparatus for determining the flash point of petroleum must be deposited with every officer appointed under Section 14(1). The expression 'flash point' is defined under Section 2(c) as follows: W.A. No. 2923 of 2009 -:11:-

"(c) 'flash-point' of any petroleum means the lowest temperature at which it yields a vapour which will give a momentary flash when ignited, determined in accordance with the provisions of Chapter II and the rules made thereunder."

15. In our opinion, the other provisions may not be very relevant for the present purpose except Section 23 of the Act which provides for the penalty of imprisonment or fine in the case of the contravention of the various provisions of the Act or Rules specified under Section 23.

16. Therefore the procedure prescribed under Chapter X of the Petroleum Rules, 2002 is a procedure required to be followed by the offices of the State while drawing the samples of the Petroleum products. Such a conclusion is irresistible from the language of the various rules in the said Chapter such as 16, 188 etc where the expression 'sampling officer' is employed. For example, Rule 186(1) reads as follows:

"186. Drawing of sample.- (1) In all cases, the sampling officer shall personally superintend the drawing of the sample and the sample shall be drawn in the presence of at least one witness. Where the sample is drawn from an original unopened receptacle containing petroleum otherwise than in bulk the opening shall be sufficient to admit of the sample being rapidly transferred from the receptacle." W.A. No. 2923 of 2009 -:12:-

The expression sampling officer is defined under Rule 2(22) as follows:

"(xxii) 'Sampling officer' means an officer authorized by the Central Government under sub-section (1) of section 14 of the Act;"

17. There is nothing in the rules which obligates (either by an express provision or by a necessary implication) the Company to follow the procedure prescribed under Chapter X while drawing samples of the petroleum products in the custody of the dealers. However, the learned counsel for the appellant Sri.K.V.Sohan submitted that though the offices of the Company are not bound by law to follow the procedure stipulated under Chapter X of the Petroleum Rules, the Company by its choice has been adopting the procedure prescribed under Chapter X of the Rules in all those cases wherever they are drawing samples of petroleum products from the custody of its dealers/agents. Therefore the learned counsel argued that it is necessary to examine whether the Company strictly complied with such procedure which it chose to follow. For the sake of the present W.A. No. 2923 of 2009 -:13:- appeal we will not go into the question whether the Company voluntarily chose to follow the procedure prescribed under Chapter X of the Petroleum Rules but we shall presume so for the purpose of this appeal. Even then, according to us, failure on the part of the Company to scrupulously follow the procedure prescribed, (once again we presume that there was a failure without actually deciding the question), in our opinion, does not entitle the appellant to have his contractual rights adjudicated by this Court and seek a relief from this Court in exercise of its jurisdiction under Article 226 of the Constitution of India. Merely because the Company chose to adopt certain procedure prescribed by a Statute, the alleged infraction of the right resulting from the alleged violation of such a procedure does not convert the litigation emanating from such a violation into a litigation falling within the ambit of public law. The rights and obligations still continue to be rights and obligations arising out of a contact between the parties, the remedies for breach of any such contractual rights or obligations, in our opinion, are necessarily in the realm of private law.

W.A. No. 2923 of 2009 -:14:-

18. The failure to follow the procedure, prescribed under Chapter X of the Petroleum Rules, 2002 by an officer appointed under Section 14 of the Petroleum Act, is required to be scrutinized strictly under Article 226. Because a report (of the quality of the material) emanating from such irregular procedure adopted by a sampling officer is likely to result in a serious consequence of deprivation of personal liberty of the dealer leading to imprisonment and fine. The failure, if any, to strictly follow the procedure prescribed under Chapter X while drawing the samples and subjecting them to a test by an officer of the Company results in purely civil consequences adverse to the dealer. Therefore, in our opinion, while adjudging the legality of the procedure adopted in drawing the samples of petroleum products, the intensity of the scrutiny should necessarily vary depending upon the nature of the consequences which are likely to follow from such irregular action. Consequently appropriateness of the legal forum also varies.

19. We may also mention here that the agreement between the parties specifically contains a clause, i.e. Clause 66, W.A. No. 2923 of 2009 -:15:- providing for dissolution of disputes of any nature whatsoever regarding any right, liability, act, omission etc. arising out of or in relation to the agreement is required to be resolved by arbitration. Clause 66 reads as follows:

"66. Any dispute or difference of any nature whatsoever or regarding any right, liability, act, omission or account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitration of the Managing Director of the Corporation or of some officer of the Corporation who may be nominated by the Managing Director. The dealer will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that in the course of his duties as an officer of the Corporation he had expressed views on all or any of the matters in dispute or difference. In the event of the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Managing Director as aforesaid at the time of such transfer, vacation of office or inability to act, shall designate another person to act as arbitrator in accordance with the terms of the agreement such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Managing Director or a person nominated by such Managing Director of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the Arbitrator so appointed shall be final, conclusive and binding W.A. No. 2923 of 2009 -:16:- on all parties to the agreement, subject to the provisions of the Arbitration Act, 1940 or any statutory modification of or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the Arbitration proceedings under this Clause.

The award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four months as the sole Arbitrator shall by a writing under his own hands appoint."

20. From a reading of the abovementioned Clause it is very clear that every kind of dispute arising out of the rights and obligations created by the contract are amenable to adjudication by an arbitrator. The question is whether such a dispute is required to be examined in exercise of our jurisdiction under Article 226 of the Constitution. It is settled law that normally this Court will not adjudicate the rights and obligations of parties arising out of a contract, even in a case where one of the parties to the contract is the State. Apart from that the current jurisprudential trend and the States litigation policy is professedly to encourage alternative dispute resolution mechanisms in order to reduce the pressure on the judicial system and ensure a speedy resolution of the disputes. In our opinion, they are W.A. No. 2923 of 2009 -:17:- relevant factors in deciding the question whether the discretionary jurisdiction under Article 226 is to be exercised or not in a given case. However, the learned counsel for the appellant placed reliance upon a judgment of the Supreme Court in Harbanslal Sahnia and another v. Indian Oil Corpn. Ltd and others [AIR 2003 SC 2120]. At paragraph 7 of the said judgment it is held as follows:

"7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants was liable to be dismissed, suffice it to observe that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies; (i) where the writ petition seeks enforcement of any of the Fundamental Rights; (ii) where there is failure of principles of natural justice or, (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act and is challenged. (See Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others (1998)8 SCC 11). The present case attracts applicability of first two contingencies. Moreover, as noted, the petitioners' dealership, which is their bread and butter, came to be terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings."

W.A. No. 2923 of 2009 -:18:-

21. It was a case where the Indian Oil Corporation, another nationalised company, carrying on business in Petroleum products terminated the dealership of the appellant before the Supreme Court on the ground that on the inspection carried on by the Corporation it was found that the density of the products whose samples were drawn was not in conformity with the standard specification. Challenging the termination order, the dealer approached the High Court and the High Court declined to interfere in the matter on the ground that the rights and obligations in issue are purely contractual. It appears from the judgment of the Supreme Court that there were allegations of non co-operation on the part of the dealer and discourteous behaviour towards the officers of the Corporation, though according to the Supreme Court those were not the grounds on the basis of which the termination order was issued by the Corporation, the Supreme Court took note of an additional affidavit filed voluntarily before the Supreme Court during the course of hearing expressing the regrets of the dealer for departing from the normal behaviour of courtesy expected out of W.A. No. 2923 of 2009 -:19:- him towards the officers of the Corporation. At paragraph 6 it is recorded as follows:

"6. As already stated, the cancellation is founded solely on the failure of the appellants' sample. Non-co-operation and discourteous behaviour of the appellants has been alleged in a very general way without specifying what was non-co- operation and what was the discourtesy shown to the officers of the respondent-Corporation. The deficiency in sales is also generally stated without particularising the same. So is the case with deficiency in maintaining the records. Be that as it may, these are the grounds which formed the subject matter of the earlier show cause notice which was not persuaded. In all probability, the respondent-Corporation felt satisfied with the explanation furnished by the appellants. The order of termination is certainly not founded on these grounds and, therefore, this aspect need not be pursued further. It may be stated that the appellants have volunteered to file a statement made on affidavit during the course of hearing before this Court, expressing regrets for any incident of departure from normal behaviour and courtesy expected of the appellants towards the officials of the respondent-Corporation and submitting that it might have happened inadvertently but in future the appellants would be more careful and shall show full W.A. No. 2923 of 2009 -:20:- regards to the visiting officials of the respondent-Corporation and extend their full co-operation in their dealings with the respondent."

It is in this background the appeal was allowed. The observations made in paragraph 7 of the judgment extracted, in our opinion, do not lay down any universal principle of law that in every case where there is a termination of the dealership agreement by an oil company, a writ petition under Article 226 is necessarily maintainable.

In the circumstances, we do not see any merit in the appeal which calls for the interference with the result of the judgment under appeal. The Writ Appeal is therefore dismissed.

J.Chelameswar, Chief Justice.

P.R.Ramachandra Menon, Judge.

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