Chattisgarh High Court
M/S Sai Service Station vs ) Indian Oil Corporation on 20 October, 2008
Author: Satish K. Agnihotri
Bench: Satish K. Agnihotri
HIGH COURT OF CHATTISGARH AT BILASPUR
Writ Petition C No 4528 of 2008
M/s Sai Service Station
...Petitioners
Versus
1) Indian Oil Corporation
2) Indian Oil Corporation
3) Sri Satish Kumar Singh
...Respondents
! Mr. Kanak Tiwari, Sr. Advocate with Mr. Mateen Siddiqui Advocate for the petitioner ^ Mr. Sanjay K. Agrawal, Advocate with Shri Sudeep Agrawal Advocate for the respondents No. 1 and 2 Honble Mr. Satish K. Agnihotri, J Dated: 20/10/2008 : Judgement (Writ Petition under Article 226 of the Constitution of India) JUDGMENT & ORDER (Passed on this 20th day of October , 2008) Challenge in this petition is to the memo/order dated 11-7-2008 (Annexure P/1), whereby the sales officer of the respondent Corporation has suspended the sale and supply of the retail outlet (hereinafter referred to as "RO") of the petitioner's service station.
2) The indisputable facts, in brief, as projected by the petitioners are that the petitioner is a proprietary concern and the petitioner was appointed as a dealer of the respondent corporation, a public sector oil company registered under the Indian Companies Act, 1956 (for short "the Corporation"), pursuant to Petrol/HSD Pump Dealer Agreement (for short, "the agreement") dated 25-3-2004 (Annexure P/2). On the evening of 9-8-2007 (sic) "9-7-2008" some officers of the Anti Adulteration Cell/respondent Corporation visited the petrol pump for inspection. Inspection could not be carried out on account of certain disturbance created by some of the persons, according to the petitioner, outsiders. On 11-7-2008 the site was again visited by the officers and the impugned letter/order was handed over to the petitioner stating that during inspection on 9-7-2008 one unknown person entered into office and started threatening/creating hindrance in inspection and forcing all IOC official (the respondent Corporation) to vacate RO premises. It was further observed that "he with the help of some other people have taken our marker colour, filled sample box and all paper. Your support was not as per expectation." Thereafter, it was directed "all the matter is under investigation. As per instruction given by MPSO/RPDO, your sale and supply is suspended with immediate effect", and thereafter proceeded with inspection and collected various samples from the petitioner's petrol pump. The corporation has issued a show cause notice on 17-7-2008 (Annexure R/2) without any reference to the order passed on 11-7-2008. Thus, this petition.
3) Mr. Kanak Tiwari, learned Senior counsel with Mr. Mateen Siddiqui, learned counsel appearing for the petitioner would submit that on 10-7-2008 a complaint (Annexure P/5) was made by the petitioner against unknown persons an on the same day First Information Report was lodged against brother of the petitioner and his staff and the investigation is under progress in Crime No. 306/2008. Mr. Tiwari would further submit that the Corporation has made and issued Marketing Discipline Guidelines, 2005 (for short, "Guidelines") with effect from 1-8-2005. No source of law has either been referred to or quoted in the guidelines. The allotment of the dealer-ship to the petitioner is in accordance with the provisions of the agreement.
4) Clause 43 of the Agreement reads as under:
"43. The dealer undertakes faithfully and promptly to carry out, observe and perform all directions or rules given or made from time to time by the Corporation for the purpose carrying on of the dealership of the Corporation. The Dealer shall scrupulously observe and comply with all laws, rules, regulations and requisitions of the Central/State Governments and of all authorities appointed by them or either of them including in particular the Chief Inspector of Explosives, Government of India, and/or Municipal and/or any other local authority with regard to the storage and sale of such petroleum products."
Thus, the guidelines have not been made a part of the agreement.
5) Mr. Tiwari would further contend that the obligation of the petitioner as contained in the agreement and the malpractices defined in the Control Order 2005 and the licensing conditions of the State Order alone would bind the conduct of the petitioner as a dealer. The Corporation has not initiated any action or imposed penalty of suspension of sale and supply of all products under the provisions of the agreement. Thus, any action taken under the guidelines is based on extraneous consideration and fully without jurisdiction. In the impugned letter/order dated 11-7-2008 (Annexure P/1), the reason for placing the sale and supply under suspension was hindrance created by outsiders and lack of support as per expectation from the proprietor. Subsequent notice dated 17-7-2008, whereby the petitioner has been asked to submit his explanation within a period of seven days was not in continuation of the impugned memo/order dated 11-7-2008 and it appears that the suspension of sale and supply of all products, pursuant to the memo dated 11-7-2008 has nothing to do with the notice dated 17-7-2008. It was next contended that under the guidelines, if the dealer refuses to allow drawal of sample and/or carrying out inspection, a fine of Rs.50000/- and suspension of the sale and supply of all products for a maximum period of 45 days may be imposed on the first time. Thereafter, second time if such irregularity recurs, fine would be increased to Rs.1,00,000/- and suspension of sale and supply of all productions for a maximum period of 90 days. If the irregularity is repeated on third time, agreement may be terminated. Penalty provision No.17 deals with established cases of discourteous behaviour by dealers and/or his staff, non producing of complaints register wherein a fine of Rs.10,000/- first time and recurrence of the same irregularity second time, a fine of Rs.25,000/- and recurrence of the same in third time, a fine of Rs.50,000/- and on fourth occasion, terminating the sale and supply of all products are contemplated. The suspension order dated 11-7-2008 makes it clear that the petitioner was punished with suspension of sale and supply of all products on account of misbehaviour and lack of expected support from the dealer, in that event, at the most sale and supply could have been suspended with fine for a maximum period of 45 days. The suspension order came into effect on 11-7-2008 and the period of 45 days has expired on 25-8- 2008. Continuation of suspension, thereafter, is without jurisdiction and without any legal basis.
6) It was contended that under Clause 56 of the agreement due protection is provided to RO that if dealer commits breach of any covenants stipulated in the agreement and failed to remedy such beach within four days from the date of receipt of a written notice from the corporation, in that event certain penalties including termination of the agreement would follow. There is no provision for suspension of sale and supply to RO. Mr. Tiwari would further contend that the dispute referred herein does not arise out of or in relation to the agreement. Thus, Clause 67 of the agreement cannot be invoked.
7) Reliance is placed on decisions of the Hon'ble Supreme Court in the matter of Harbanslal Sahnia and another Vs. Indian Oil Corporation and others 1 and State of Himachal Pradesh Vs. Gujrat Ambuja Cement 2 .
8) Pursuant to the show cause notice dated 17-7-2008 (Annexure R/2), the petitioner has filed reply on 27-7- 2008 (Annexure R/3) and as such, the Corporation has full jurisdiction to consider reply and pass appropriate order as permissible under the provisions of the agreement. It is apparent from para No. 6.3.5 of the guidelines that two conditions must be satisfied before penal action is taken against the dealer. Firstly, show cause notice and secondly minimum time of seven days to submit explanation. Neither has been done in the present case before the impugned memo/order was issued on 11-7-2008 (Annexure P/1). Thus, the impugned memo/order deserves to be quashed.
9) Per contra, Mr. Sanjay K. Agrawal, learned counsel with Mr. Sandeep Agrawal, learned counsel appearing for the respondents No. 1 and 2 would submit that the writ petition would not be maintainable as a show cause notice was issued on 17-7-2008 and reply filed thereto is pending consideration before the Corporation. The petitioner has not challenged the legality and validity of the show cause notice dated 17- 7-2008, except impugned memo/order dated 11-7-2008. Further it was contended that Clause 67 of the dealership agreement provides for reference to the arbitration in the event of any dispute or difference of any nature whatsoever or regarding any right, liability, act, omission on account of any of the parties arising out of or in relation to the said agreement. The dispute arose on account of the order passed by the Corporation and grant of dealership was a part of the agreement and as such, the dispute ought to have been referred to the Arbitration. This court may not exercise its extraordinary jurisdiction in this case. Mr. Agrawal, would further contend that the guidelines for Petrol and diesel retail outlets have been in existence for long time to facilitate the marketing of petroleum products. There is a provision for taking punitive action against the dealer on account of irregularities committed by the dealer. Clause 6.1.1. provides for adulteration of products. Clause 6.1.1 (a) provides that authorized representatives of the oil company should carry out density check/marker check at the RO as per prescribed guidelines. Clause 6.1.1 (b) provides that if density check or marker check indicates a possible adulteration, sale and supplies of all the products would be suspended with immediate effect till such investigations are complete. The impugned memo/order dated 11-7-2008 was issued following investigations relating to show cause notice dated 17-7-2008 and thereafter reply of the petitioner was filed on 29-7-2008. The same is under consideration before the Corporation. Thus, at this stage, no interference is warranted. The instant dispute falls within the realm of private law as contract was entered into between the Corporation and a private party. Thus, it is not a statutory contract and the same is governed by the Contract Act or Sales of Goods Act. Mr. Agrawal would next contend that the guidelines have been issued and approved by the Central Government and the same have been amended on 15-1-2007 by Annexure B to the guidelines. Thus, the provisions of the guidelines are binding on the petitioner (RO) and the Corporation.
10) I have heard learned counsel for the parties, perused the pleadings and documents appended thereto.
11) It is evident that pursuant to the agreement dated 25-3-2004 (Annexure P/2) dealership was allotted to the petitioner (RO). On 9-7-2008 a team of officers of the Anti Adulteration Cell/respondent Corporation visited the petrol pump of the petitioner for inspection. During inspection on account of certain interferences caused/hindrances created by the consumers and other persons, the representatives of the Corporation could not collect the samples and certain articles were snatched away from the representatives of the Corporation. The Corporation issued a memo/order dated 11-7-2008 suspending sale and supply of all products to the petitioner RO on a specific ground that excepted cooperation did not come forward from the dealer and hindrances created by the persons. It was mentioned that the matter was under
investigation. It is apparent that sale and supply was not on account of possible adulteration, but on account of non-co-operation of the dealer and hindrances created by other persons. The representatives of the Corporation performed their inspection on 11-7-2008 and subsequent thereupon issued show cause notice on 11-7- 2008 calling upon the dealer to submit explanation.
Thereafter, explanation/reply was submitted by the dealer RO which is under consideration.
12) Without going into the merits of the case which is under consideration by the Corporation as the same may prejudice case of the parties, I confine my consideration only to the impugned memo/order dated 11-
7-2008. There is no reference of the memo/order dated 11-7-2008 in the show cause notice dated 17-7-2008. Thus, it can safely be held that the notice dated 17-7- 2008 was issued, pursuant to the inspection carried out on 11-7-2008. The impugned memo/order dated 11-7-2008 was on account of hindrances created by other persons and for want of expected support from the dealer.
13) It is further admitted that agreement provides for disputes arising out of or in relation to the agreement. There is no provision in t he agreement for suspension of sale and supply of all products. However, the guidelines provide for prevention of irregularities at Retail Outlets in Chapter -6. Clause 6.1.1 Adulteration of Product reads as under:
"6.1.1 Adulteration of Product:
Definition:
"Adulteration" means the introduction of any foreign substance into Motor Spirit/High Speed Diesel illegally or unauthorizedly with the result that the product does not conform to the requirements of Bureau of Indian Standards specification number IS: 2796 and IS: 1460 for Motor Spirit and High Speed diesel, respectively, and amendments thereon, and/or.
Under the 3 - tier sampling scheme, if the observations on the sample under scrutiny and the reference sample do not fall within the reproducibility/permissible limits of the test method for which the samples are examined, and/or.
Any other requirement for the purpose to identify adulteration, issued by the Competent Authority from time to time.
Penal action to be taken against the erring Retail Outlet/SKO-LDO dealerships for adulteration and other malpractices/irregularities are given in Appendix-I. a. Individual Oil Company Officers or their authorized representatives should carry out density checks and marker/furfural checks (wherever applicable) at the Retail Outlets as per the prescribed guidelines. Moreover, on random basis, at the discretion of the Inspecting Officer, samples may be drawn for clinical tests/RON, even if the density variation is within permissible limits.
b. If density check or Marker/furfural check (wherever applicable) indicates possible adulteration: Sale and supply of all products to be suspended immediately till such time investigations are completed. Meter and dip readings should be recorded in the Inspection Report duly signed by the Dealer or his representative together with rubber stamp of dealership and each page of the inspection report shall be initialed by Inspecting officer and Dealer/Dealer's representative. Dispending Pumps and Tanks should be sealed.
Wherever samples are drawn, either pursuant to random checks or where adulteration is suspected, samples should be collected from each tank at the RO and got tested as per 3- tier sampling system (explained in Chapter-2). c. If the sample passes the lab test, sale and supply of all products, if suspended earlier, will be resumed to the dealer immediately.
If the sample is certified to be adulterated, after laboratory test, a show-cause notice should be served on the dealer and explanation of the dealer sought within 7 days of the receipt of the show-cause notice. If the explanation of dealer is not satisfactory, the Company should take penal action as given in Appendix -1."
14) Appendix-1 to the guidelines provides for penal action. Serial Numbers 12, 14, 15, 16, 17, 18, 19 and 20 deals with suspension of sale an supply which read as under:
Sl. Nature of MDG 2005
irregularity 1st Penal 3rd
Action
2nd
12 Non maintenance Fine of Fine of Terminatio
of Rs.25,000 Rs.50,000 n
inspection/stock/ & &
sales records and suspension suspension other records of sale of sale and supply and supply of all of all products products for 15 for 30 days days
14. Over charging of Fine of Fine of Terminatio MS/HSD Rs.25000 & Rs.50,000 n suspension & of sale suspension and supply of sale of all and supply products of all for 15 products days for 30 days 15 Non-observance of Fine of Fine of Terminatio Govt. regulations Rs.25,000 Rs.50,000 n.
& &
suspension suspension
of sale of sale
and supply and supply
of all of all
products products
for 15 for 30
days. days.
16 Refusal by dealer Fine of Fine of Terminatio
to allow drawal Rs.50000 & Rs.1,00,00 n of sample and/or suspension 0 & carrying out of of sale suspension inspection and supply of sale of all and supply products of all for 45 products days. for 90 days.
17. Established cases Fine of Fine of Fine of of discourteous Rs.10,000/-Rs.25,000/- Rs.50,000/-
behaviour by -
dealers and/or Terminatio
his staff, non- n in case
producing of of 4th
complaints instance.
register
18. Non-provision of Fine of Fine of Fine of
free Air with Rs.10,000 Rs.25,000 Rs.1,00,00 caliberated Air 0 & Guage, Drinking suspension water, Radiator of sale Water, Clean and supply Toilet of all Facilities, products telephone, First for 45 Aid box with days for current 3rd & medicines, PUC subsequent (where instances.
applicable)
19. Established cases Fine of Fine of Fine of of issuance of Rs.25,000 Rs.50,000 Rs.1,00,00 fake PUC & & 0/- & Certificates by suspension suspension suspension dealers having of sale of sale of sale PUC facility and supply and supply and supply of all of all of all products products products for 15 for 45 for 45 days. days days for 3rd & subsequent instances
20. Non Display of Fine of Fine of Fine of authorized Retail Rs.10,000 Rs.25,000 Rs.50,000/-
selling price of &
MS/HSD suspension
of sale
and supply
of all
products
for 15
days for
3rd &
subsequent
instances"
15) On perusal of the above provisions of the
suspension, it is apparent that this is not a case of non-maintenance of Inspection/Stock/Sales Records and other records or over charging of MS/HSD or non- observance of Government regulations or non-provision of free Air with caliberated Air Guage or established cases of issuance of fake PUC certificates by dealers having PUC facility and non display of authorized retail selling price of MS/HSD. The present dispute which arose on 9-7-2008 comes within penalty provisions. 16 an 17 i.e., refusal by dealer to allow drawal of sample and/or carrying out of inspection and established cases of discourteous behaviour by dealers and/or his staff and non-producing of complaints register. In case of penalty No.16 penal action provided for having committed the irregularity as prescribed is imposition of fine of Rs.50,000 and suspension of sale and supply of all products for 45 days. If the same is repeated second time, fine of Rs.1,00,000/- and suspension of sale and supply of all the products for 90, days. If the irregularity is repeated on third time, agreement may lead to termination. The Corporation has not imposed a fine of Rs.50,000/-, but has suspended the sale an supply of all the products. Thus, even otherwise, since the period of 45 days has come to an end, the suspension may not continue but the inspection on the ground of adulteration or investigation on other ground is not the reason for passing the order dated 11- 7-2008 as is clear from perusal of the memo/order dated 11-7-2008.
16) With regard to the maintainability of the writ petition, admittedly, the petitioner is not granted four days time to make good the default as prescribed under the Clause 56 of the agreement. Therefore, the provision of the agreement was not invoked and as such the dispute has not arisen out of or in relation to the agreement, which may be referred to the Arbitrator. This Court may exercise its discretionary jurisdiction under Article 226 of the Constitution, particularly in case of discrimination, arbitrariness and violation of principles of natural justice, which amounts to violation of Article 14 of the Constitution and look into the matter and take judicial review of the dispute.
17) Strictly speaking, it cannot be held that the dispute falls within the realm of private law, as the Corporation is a public sector undertaking registered under the Companies Act, 1956 deals with public at large , it does not come within the realm of public law. Thus, this Court has full jurisdiction to take judicial review of any omission or commission of the authorities of the Corporation.
18) In the matter of Mahabir Auto Stores and others Vs. Indian Oil Corporation and others3, wherein Their Lordships of the Supreme Court have settled legal position with regard to status of Indian Oil Corporation that the Indian Oil Corporation is an organ or instrumentality of the State as contemplated under Article 12 of the Constitution.
19) In the matter of Harbanslal Sahnia and another (supra), the facts were identical. There was an agreement between the Indian Oil Corporation and the dealer, whereby the appellants were appointed as dealers in Petroleum Products. On 15-12-1999 officers of the Corporation visited RO of the appellants for inspection of the dealership. The Corporation issued a show cause notice thereafter and requiring the appellants to explain why density record was not maintained. Secondly, the dealer did not cooperate with the officers who had come to inspect the retail outlet and rather used unparliamentary language and displayed discourteous behaviour. Hon'ble the Supreme Court held that the cancellation was founded solely on the failure of the dealer's sample. Non-cooperation and discourteous behaviour of the dealer has been held in a very general way without specifying what was the non- cooperation and what was the discourtesy shown to the officers of the Indian Oil Corporation.
20) Hon'ble the Supreme Court in the matter Harbanslal Sahnia and another (supra), observed as under:
"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 is concerned, 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 is challenged (See Whirlpool Corpn v. Registrar of Trade Marks 1). The present case attracts applicability of the 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."
21) In the matter of State of H.P. and others (supra), in respect of power relating to alternative remedy, it was held that alternative remedy is a rule of self- imposed limitation, a rule of policy, convenience and discretion and never a rule of law.
22) Reliance of Mr. Sanjay K. Agrawal on the decision in the matter of Special Director and another Vs. Mohd. Ghulam Ghouse and another4 is not relevant as there is no challenge to the legality of the show cause notice dated 17-7-2008 and the court is not dealing with the legality of the show cause notice.
23) The decision in the matter Smt. Rukmanibai Gupta Vs. Collector, Jabalpur and others 5 relied upon by the counsel for the respondent Corporation is not relevant as the High Court exercising its discretionary jurisdiction declined to entertain the writ petition on the ground of availability of alternative remedy of referring the dispute to the Arbitration. In the case on hand, the dispute did not arise from the provisions of the agreement.
24) Hon'ble the Supreme Court in the matter of Empire Jute Co. Ltd. & others Vs. Jute Corporation of India Ltd. & another 6 observed as under:
"21. Relying on some of the earlier decisions of this Court, this Court held:
"It may be true that in a given case when an action of the party is dehors the terms and conditions contained in an agreement as also beyond the scope and ambit of the domestic forum created therefore, the writ petition may be held to be maintainable; but indisputably therefore such a case has to be made out. It may also be true, as has been held by this Court in Amritstar Gas Service and E. Ventkatakrishna that the arbitrator may not have the requisite jurisdiction to direct restoration of distributorship having regard to the provisions contained in Section 14 of the Specific Relief Act, 1963; but while entertaining a writ petition eve in such a case, the court may not lose sight of the fact that if a serious disputed question of fact is involved arising out of a contract qua contract, ordinarily a writ petition would not be entertained. A writ petition, however, will be entertained when it involves a public law character or involves a question arising out of public law functions on the part of the respondent."
25) In the matter of Agri Gold Exims Ltd Vs. Sri Lakshmi Knits & Wovens and others7, relied upon by Mr. Sanjay K. Agrawal, the Hon'ble Supreme Court observed as under:
"22. Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration in terms of the arbitration agreement. (See Hindustan Petroleum Corpn. Ltd. V. Pinkcity Midway Petroleums2 and Rashtriya Ispat Nigam Ltd3). No issue, therefore, would remain to be decided in a suit. Existence of arbitration agreement is not disputed. The High Court, therefore, in our opinion, was right in referring the dispute between the parties to arbitration."
26) The decision of Bharat Sews Sansthan vs. U.P. Electronics Corporation Limited8, relied upon by Mr. Agrawal, may not be relevant to the facts of the present case as no dispute has arisen out of or in relation to the provisions of the agreement.
27) In the matter of Pimpri Chinchwad Municipal Corporation and others Vs. M/s. Gayatri Construction Company and another9, relied upon by Mr. Agrawal, the Hon'ble Supreme Court observed that in case of question of construction of contract, if a term of contract is violated, ordinarily the remedy is not the writ petition under Article 226 if the contract falls in realm of the private law. The decision is not applicable to the facts of the present case as the Hon'ble Supreme Court held (supra) that Indian Oil Corporation is a state within Article 12 of the Constitution.
28) A common thread running into the above cited decision is that in case of arbitration agreement, the writ court should not exercise its jurisdiction when there is a clear provision for reference of a dispute to the arbitrator. Secondly, in the contract which falls within the realm of the private law may not be entertained by the High Court in exercise of its writ jurisdiction. The facts of the instant case are entirely different. The agreement between the dealer and the Corporation provided for grant of four days time to make good the irregularity allegedly committed by the dealer. The corporation has not invoked that remedy and has taken recourse to the guidelines which provides for suspension of sale and supply of all products in case of refusal by dealer to allow drawal of sample and/or carrying out of inspection and discourteous behaviour by dealers and/or his staff, non producing of complaints register.
29) It is well settled principles of law that no order visiting with civil (evil) consequences can be passed without affording an opportunity of hearing to the aggrieved party. In the case on hand, the impugned memo/order dated 11-7-2008 was passed, admittedly on account of hindrances created by other persons and short of expected cooperation of the dealer, without affording an opportunity of hearing to the petitioner/dealer. Subsequent show cause notice dated 17-7-2008 has no reference to the impugned memo/order dated 11-7-2008. Serial No. 16 and 17 of the Appendix 1 to the guidelines provides that in case of irregularity of the nature involved in the subject matter of the petition entails imposition of penalty of Rs.50,000/- and suspension of sale and supply of all products for a maximum period of 45 days. Thus, suspension of sale and supply of all products cannot survive after expiry of 45 days. The suspension order came into effect on 11-7-2008 and the period of 45 days has expired on 25-8-2008.
30). Without expressing any opinion on the investigation which is under consideration, pursuant to the show cause notice dated 17-7-2008, this Court is of the considered opinion that the impugned memo/order dated 11-7-2008 can not sustain after completion of 45 days. Thus, the impugned memo/order dated 11-7-2008 (Annexure P/1) is quashed. The respondent Corporation is at liberty to continue with investigation as initiated by issuing show cause notice dated 17-7-2008 and take appropriate action or otherwise whatever permissible under the provisions of the contract agreement or law.
31) For the reasons mentioned hereinabove, this petition is allowed. The impugned memo/dated 11-7-2008 (Annexure P/1) is quashed. No order asto costs.
JUDGE