Kerala High Court
R Madhu vs Union Of India on 6 February, 2025
Author: C.S.Dias
Bench: C.S.Dias
2025:KER:9844
WP(C) NO. 2956 OF 2025
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE C.S.DIAS
THURSDAY, THE 6TH DAY OF FEBRUARY 2025 / 17TH MAGHA, 1946
WP(C) NO. 2956 OF 2025
PETITIONER:
R MADHU
AGED 64 YEARS
S/O RAMAKRISHNA PANIKKAR., USHUS, PULLAD P.O.,
THIRUVALLA, PATHANAMTHITTA, KERALA, PIN - 689548
BY ADVS.
ADARSH KUMAR
K.M.ANEESH
SHASHANK DEVAN
YADU KRISHNAN P.M.
RESPONDENTS:
1 UNION OF INDIA
REPRESENTED BY ITS SECRETARY MINISTRY OF
PETROLEUM AND NATURAL GAS, SHASTRI BHAVAN, NEW
DELHI, PIN - 110001
2 INDIAN OIL CORPORATION LIMITED
REPRESENTED BY ITS DIVISIONAL LPG HEAD, INDANE
DIVISIONAL OFFICE, PANAMPILLY AVENUE, PANANIPILLY
NAGAR P.O., KOCHI, ERNAKULAM, PIN - 682036
3 THE DIVISIONAL L.P.G HEAD
INDIAN OIL CORPORATION LIMITED, INDANE DIVISIONAL
OFFICE, PANAMPILLY AVENUE, PANAMPILLY NAGAR P.O.,
KOCHI, ERNAKULAM, PIN - 682036
BY ADVS.
GOPIKRISHNAN NAMBIAR M
2025:KER:9844
WP(C) NO. 2956 OF 2025
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K.JOHN MATHAI(K/413/1984)
JOSON MANAVALAN(J-526)
KURYAN THOMAS(K/131/2003)
PAULOSE C. ABRAHAM(MAH/58/2006)
RAJA KANNAN(K/356/2008)
AKHILA NAMBIAR(K/737/2021)
OTHER PRESENT:
DSGI SRI T C KRISHNA
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR
ADMISSION ON 31.1.2025, THE COURT ON 06.02.2025 DELIVERED
THE FOLLOWING:
2025:KER:9844
WP(C) NO. 2956 OF 2025
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C.S.DIAS,J.
====================
W.P.(C)No.2956 of 2025
--------------------------------------
Dated this the 6th day of February, 2025
JUDGMENT
The writ petition is filed to quash Exts.P1 and P3 communications and to declare that the Marketing Discipline Guidelines, May 2022 ('MDG', for brevity) do not have the force of law.
2. The petitioner is a Liquefied Petroleum Gas distributor of the second respondent corporation ― a State-Owned Oil Marketing Company. The third respondent had issued Ext.P3 notice to the petitioner to show cause why action should not be taken under clause 4.2 of the MDG. In response to Ext.P3, the petitioner submitted Ext.P4 reply. However, by Ext.P1 order, the third respondent has imposed a penalty of Rs.1,39,751/- on the petitioner. The penalty has been imposed on the ipse-dixit quantification of the third respondent on the petitioner's average monthly distributor's commission. The third respondent has threatened the petitioner that the amount would be debited from 2025:KER:9844 WP(C) NO. 2956 OF 2025 4 the petitioner's PAD balances if the penalty is not paid. The penalty has been imposed due to the alleged poor rating of the petitioner in respect of the Targeted Delivery Time ('TDT', in short) during the quarter of July-September 2024. No proper or cogent reasoning has been given in Ext.P1 order, which is a non-speaking order. There is only a mechanical extraction of explanations put forth by the petitioner. The third respondent has passed a casual one-liner that the petitioner's submission cannot be accepted. In Ext.P2(A) judgment, this Court has set aside the penalty orders passed under the MDG because they were non-speaking orders. Ext.P1 is to be declared bad in law. The MDG is only a guideline framed by the State Oil Marketing Companies to give instructions to dealers and distributors. It lacks the force of law. Therefore, Exts.P1 and P3 may be quashed.
3. The respondents 2 and 3 have filed a statement contending that the writ petition is not maintainable in view of the alternative dispute mechanism of arbitration provided in the Distributorship Agreement. Therefore, this Court may not 2025:KER:9844 WP(C) NO. 2956 OF 2025 5 exercise its extraordinary jurisdiction. Ext.P1 is a speaking order. As per the TDT report of July-September 2024, the petitioner's TDT rating is 'Poor' because the delivery time was more than 8 days for more than 15% of the deliveries, based on the information in the 2nd respondent's computer system. In response to Ext.P3 show cause notice, the petitioner has alleged vague and unsubstantiated excuses for the 'Poor' TDT rating. The third respondent in Ext.P1 order has duly considered the excuses put forth by the petitioner. The materials forming the basis of Ext.P3 show cause notice was made available to the petitioner. The third respondent's power to impose a penalty under the MDG is no longer res-integra in view of Ext.P2(A) judgment passed by this Court and the Delhi High Court. Therefore, the writ petition may be dismissed.
4. Heard: Sri. Adarsh Kumar, the learned counsel for the petitioner; Sri. T.C. Krishna, the learned Solicitor General of India for the first respondent; and Sri. Paulose C. Abraham, the learned counsel appearing for respondents 2 and 3.
5. The learned counsel for the petitioner reiterated the 2025:KER:9844 WP(C) NO. 2956 OF 2025 6 contentions in the writ petition. He contended that the respondents 2 and 3 are not empowered to impose liquidated damages when the breach is not admitted. He also argued that as per the mandate clause 4.2 (ix) of Ext.P2 MDG, the third respondent was bound to pass a speaking order. Furthermore, the petitioner was not furnished with the relevant report as provided under clause 4.2 (vii) of Ext.P2. The third respondent has unilaterally imposed the penalty under the MDG, which is foreign to the law of contracts. Respondents 2 and 3 can only act in line with the Distributorship Agreement. The learned counsel relied on the decision of the Honourable Supreme Court in M.P. Power Management Company Limited, Jabalpur v. M/s Sky Power Southeast Solar India Private Limited & Others [(2022) 5 S.C.R. 1] and the decision of this Court in Build Tech. India v. State of Kerala & Others [2000(2) K.L.J 142] to fortify his contentions.
6. The learned Counsel for respondents 2 and 3 argued that Ext.P2(A) judgment has attained finality, wherein this Court has upheld the right of the second respondent to impose a 2025:KER:9844 WP(C) NO. 2956 OF 2025 7 penalty under the MDG. He submitted that he was not pressing the contention regarding the alternative remedy of arbitration. He relied on the Delhi High Court decision in Indian Oil Corporation Limited and Others v. All India Petroleum Dealers Association registered and Others [LPA 24/2021] to buttress his contention that the Oil Marketing Companies have the right to impose penalties under the MDG. The learned counsel drew the attention of this Court to Clause 4.1 of Ext.P2 MDG and contended that since the petitioner had achieved only one star in July-September 2024 i.e., a delivery time of less than 15% in 8 days, the second respondent was empowered to impose the penalty as per Clause 4.2 (iv) of Ext.P2. In view of the patent violation of clause 4.1 of Ext.P2, the impugned order was passed. He prayed that the writ petition may be dismissed.
7. The two-fold contention of the petitioner is that (i) Ext.P2 MDG has no force of law and (ii) Ext. P1 order and Ext.P3 show cause notice have to be quashed.
8. While considering a challenge against the imposition of 2025:KER:9844 WP(C) NO. 2956 OF 2025 8 penalty under the MDG, this Court, in Ext.P2(A) judgment, has held thus:
"9. As regards the first point to be considered, these writ petitions have been filed essentially relying upon Ext.P7 judgment (produced in W.P(C) No.9331 of 2020) of a learned Single Judge of the Delhi High Court by which certain Clauses of the MDG entitling levy of monetary penalty were struck down. However, as rightly pointed out by the learned senior counsel on behalf of the respondent Corporation, the afore judgment of the learned Single Judge was the subject matter of challenge at the instance of the respondent Corporation. By a judgment dated 10.01.2022, a Division Bench of the Delhi High Court has found that such monetary penalty can be imposed under the MDG, and hence the judgment of the learned Single Judge was set aside. In the light of the afore, I am of the opinion that the respondent Corporation is entitled to impose monetary penalty with reference to the provisions of the MDG, on the petitioners herein. "
9. Indisputably Ext.P2(A) judgment has attained finality. I completely concur with the law laid down in Ext.P2(A) judgment. Therefore, the contention that the MDG does not have the force of law no longer survives. Hence, I answer the question against the petitioner.
10. The petitioner is a distributor of the second respondent, which has promulgated Ext.P2 MDG to establish the operating policies, practices, and procedures for distributors to follow when serving LPG consumers.
11. It is apposite to refer to Clauses 4.1 and 4.2 of 2025:KER:9844 WP(C) NO. 2956 OF 2025 9 Ext.P2 MDG, which are germane for deciding the instant case and reads as follows:
"DELIVERY CONTROL 4.1 Targeted Delivery Time Norms
i) The distributor will have to deliver the cylinder within the "Targeted Delivery Time"(TDT)
ii) Delivery time would be the time between the booking date and the delivery date.
iii) The TDT performance envisages rating of distributors based on the quarterly performance of the Financial Year (Q1:Apr-Jun, Q2: Jul-
Sep,Q3: Oct-Dec, 04:Jan- Mar) with respect to delivery time as per the following categories:
5 Star >85% delivery in <=2 day 'Excellent' 4 Star =>85% delivery in <=4 days 'Good' 3 Star =>85% delivery in <= 6 days 'Average 2 Star =>85% delivery in <= 8 days 'Below Average' Star >15% delivery in > 8 days 'Poor'
iv) The distributor should ensure that the distributorship operation is not rated with '1' Star, i.e. 'Poor' rating and '2' Star, i.e. Below Average rating in a quarter, failing which action shall be taken as defined in clause No. 4.2 below.
v) Relevant information regarding the TDT performance will be available on the Portal of the respective OMCs.
vi) Once these guidelines are made effective, the earlier cases related to TDT norms will remain the same as applicable under preceding TDT norms and shall be counted within the cycle period of Four Quarters under the current MDG.
2025:KER:9844 WP(C) NO. 2956 OF 2025 10
vii) Applicable statutory taxes will be recoverable over and above the amount of fine/penalty etc. 4.2 Action to be taken for not meeting TDT norms
i) In case of newly commissioned distributors, the TDT norms will become effective from the third quarter following the quarter in which the distributorship is commissioned. (For ex. If any distributor is commissioned in 1st quarter of the financial year then TDT norms will be applicable for such distributors from the 4 Quarter of the financial year)
ii) The TDT compliance norms will not be applicable to the distributor in case the delivery of cylinder to customers is affected due to circumstances beyond control viz, natural calamities, strikes/ bandhs, law & order situation, Government directives, product availability/supply constraints with OMCs etc.
iii) The information regarding the TDT performance available on the Portal of the respective OMCs will be taken into consideration along with the actual situation with regard to the supplies of LPG.
iv) Action against Distributors performing at "Poor" rating:
(a) In all established cases wherein a distributor performs at "Poor"
rating during any quarter, a fine equivalent to 20% of AMDC as defined in Chapter-6 shall be imposed.
(b) In all established cases wherein a distributor performs at "Poor" rating during any quarter subsequent to (a) above within previous 4 quarters, a fine equivalent to 30% of AMDC as defined in Chapter-6 shall be imposed on every instance of "Poor" performance rating.
v) Action against Distributors performing at "Below Average" rating:
(a) In all established cases wherein a distributor performs at "Below Average" rating during any quarter, a fine equivalent to 10% of AMDC as defined in Chapter-6 shall be imposed.
(b) In all established cases wherein a distributor performs at "Below Average" rating during any quarter subsequent to iv(a) or v(a) above within previous 4 quarters, a fine equivalent to 20% of AMDC as defined in Chapter-6 shall be imposed on every instance of "Below 2025:KER:9844 WP(C) NO. 2956 OF 2025 11 Average" Performance rating.
vi) Action for not meeting the TDT norms as given above shall be taken independent of the actions as stated in Chapter 3 which are applicable for different type of Irregularities (described in Chapter 2).
vii) In respect of all established cases of not meeting the TDT norms as mentioned above at clause No. 4.2- (iv) & (v), a show cause notice will be issued by the concerned Divisional LPG Head (DLH) /Territory Manager (TM)/ Regional Manager (RM) to the Distributor, within 30 days from the completion of preceding quarter. The show cause notice should be issued along with the relevant report(s) from the OMC portal which forms the basis of the notice.
viii) The Distributor would be given a period of 15 days to reply from the date of receipt of show cause notice. Based on the request from the Distributor, the concerned Divisional LPG Head/Territory Manager/Regional Manager may allow additional time extension(s) upto a maximum period of 30 days beyond the period of 15 days from date of receipt of show cause notice for submitting the reply.
ix) Upon receipt of the reply to the show cause notice, the concerned Divisional LPG Head/Territory Manager/Regional Manager will review the charges leveled in the Show cause notice and the reply received and then pass a speaking order within a period of 45 days from the date of receipt of the reply.
The speaking order issued by DLH/TM/RM shall indicate complete details of the non-compliance to the TDT norms, the reply of the Distributor, detailed reasons as to why the reply is not acceptable and the penal action attracted. The speaking order will also clearly specify a time period of 30 days for depositing the amount of fine as applicable to the concerned OMC.
(emphasis given)
12. A reading of Clause 4.1 (supra) unquestionably establishes that the distributors must achieve the target time delivery norms, which will be assessed in every quarter. In case a distributor achieves a poor rating, Clause 4.2 (iv) postulates a fine equivalent to 20% of the Average Monthly Distributor's 2025:KER:9844 WP(C) NO. 2956 OF 2025 12 Commission (ADMC).
13. In the instant case, the second respondent issued Ext.P3 show cause notice alleging that the petitioner's TDT rating was poor from July to September 2024.
14. In response to Ext.P3 notice, the petitioner replied that, as respondents 2 and 3 had instructed to capture the NDNE market share, their intended pattern was changed from domestic loads to combination loads, which has led to the delay in the delivery time. Likewise, the petitioner had faced supply constraints from the respondents on many occasions; there was seasonal adversities, such as floods and heavy rains; few of the petitioner's delivery boys had availed medical leave; and an intermittent breakdown of delivery vehicles affected the targeted delivery time. The petitioner had delivered 28,43,16 refills within four days out of a total delivered cylinders of 3,27,910, which is 86% of the delivery. The above factors may be considered before initiating any coercive action.
15. Consequent to Ext.P4 reply, the second respondent passed Ext.P1 order imposing a fine of Rs.1,39,751/-. The crux 2025:KER:9844 WP(C) NO. 2956 OF 2025 13 of the findings in Ext.P1 order reads thus:
"This has reference to the Show Cause Notice issued vide letter No. IDO/D/56 dated 21.10.2024 wherein you were advised to submit your explanation for Poor rating during Jul 24 - Sep 24 by 05.11. 2024. You have submitted your reply vide letter dated 04.11.2024. We have scrutinized your reply and would like to state as follows.
You have stated in your reply that in order to improve NDNE market share, you had changed your indent pattern from domestic loads to combination loads, due to which there were insufficient number of domestic loads. You have also stated that delay is also caused due to the plying time for your trucks is 10 hours to 18 hours and that your plea for loads through outside trucks was not heeded. Further, you have also mentioned many unforeseen factors such as floods, illness of delivery boys, intermittent break down of delivery vehicles that has resulted in the "poor"
performance. It is reasonable to expect occasional delay under such circumstances, however, your submission that the above factors have contributed to the "poor" TDT performance cannot be accepted. Therefore, it is construed that failed to ensure availability of sufficient filled cylinders for timely delivery to the customers. Your reply is unconvincing and unacceptable. Further, Shri. Abin .M, Manager (LPG- Sales), Kottayam LSA has also not given any recommendation to waiver off penalty as per policy. Therefore, we are proceeding with action under Marketing Discipline Guidelines."
(emphasis given)
16. A careful reading of Ext.P1 would show that the second respondent has only held that the explanation put forth by the petitioner cannot be accepted, and the reply is unconvincing and unacceptable.
17. Reverting to clause 4.2 (ix), it was imperative on the 2025:KER:9844 WP(C) NO. 2956 OF 2025 14 part of the competent authority to pass a speaking order indicating the complete details of the non-compliance of TDT norms, the reply of the distributor, detailed reasons as to why the reply was not acceptable, and the penal action attracted.
18. As rightly contended by the learned counsel for the petitioner, Ext.P1 is only a one-liner and is bereft of any reason.
19. In State of Orissa v. Dhaniram Luhar [(2004) 5 SCC 568], the Honourable Supreme Court has held as under:
"7. Reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same it becomes lifeless. (See Raj Kishore Jha v. State of Bihar [(2003) 11 SCC 519 : 2004 SCC (Cri) 212] .)
8. Even in respect of administrative orders, Lord Denning, M.R. in Breen v. Amalgamated Engg. Union [(1971) 2 QB 175 : (1971) 2 WLR 742 : (1971) 1 All ER 1148 (CA)] observed (All ER p. 1154h): 'The giving of reasons is one of the fundamentals of good administration.' In Alexander Machinery (Dudley) Ltd. v. Crabtree [1974 ICR 120 (NIRC)] it was observed:
'Failure to give reasons amounts to denial of justice. Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at.' Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the 'inscrutable face of the sphinx', it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reasons is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of 2025:KER:9844 WP(C) NO. 2956 OF 2025 15 natural justice is spelling out reasons for the order made, in other words, a speaking-out. The 'inscrutable face of the sphinx' is ordinarily incongruous with a judicial or quasi-judicial performance."
20. In Kranti Associates Pvt.Ltd and another v. M/s.Masood Ahmed Khan and others [(2010) 9 SCC 496], the Hon'ble Supreme Court, after reviewing the law on the duty to record reasons has summarised the principles to be followed. It has been held that the recording of reasons operates as a restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. The reasons reassure that the decision-maker has exercised discretion on relevant grounds and by disregarding extraneous circumstances. The reasons have become an indispensable component of a decision-making process, even by administrative bodies affecting the rights of the citizens. The reasons in the order facilitate the process of judicial review by superior courts. The insistence on reasons in the order is a requirement for both accountability and transparency. If reasons are not given in the decision-making process, it may not be possible to determine whether the authority has applied its 2025:KER:9844 WP(C) NO. 2956 OF 2025 16 mind to the issue. It is further held that the reasons supporting the decision must be cogent and clear, and pretence of reasons or "rubber-stamp reasons" is not to be equated with a valid decision-making process.
21. In Sarvepalli Ramaiah v. District Collector, Chittoor District and others [(2019) 4 SCC 500], the Hon'ble Supreme Court declared that judicial review under Article 226 of the Constitution of India is directed not against the decision but against the decision-making process.
22. As already observed, though the petitioner has raised several contentions in Ext.P4 reply, including the contention that the TDT was affected due to adverse climatic conditions, which is also a valid defence under clause 4.2 (ii) of Ext.P2, the second respondent has perfunctorily rejected the same without any reason.
23. It is also equally well settled by the Honourable Supreme Court in Radha Krishnan Industries v. State of Himachal Pradesh and Others [(2021) 6 SCC 771] that an alternative remedy by itself does not divest this Court's power 2025:KER:9844 WP(C) NO. 2956 OF 2025 17 under Article 226 of the Constitution of India in a case where there is an apparent violation of principles of natural justice.
24. On an overall consideration of the matter,notwithstanding the alternative dispute mechanism prescribed in the Distributorship Agreement, I am inclined to exercise the extra-ordinary jurisdiction of this Court by quashing Ext.P1 order and directing the second respondent to reconsider Ext.P3 show cause by passing a speaking order as provided under clause 4.2 (ix) of the MDG.
In the result, the writ petition is partly allowed in the following manner:
(i) The petitioner's prayer to declare that the MDG has no force of law is rejected.
(ii) Ext.P1 order is quashed.
(iii) The second respondent is directed to re-consider Ext.P3 show cause notice and pass a speaking order, based on the materials already available on record, after affording the petitioner an opportunity to be heard.
2025:KER:9844 WP(C) NO. 2956 OF 2025 18
(iv) The second respondent shall finalise the proceedings within one week from the date of receipt of a copy of this judgment.
SD/- C.S.DIAS, JUDGE rmm/1/2/2025 2025:KER:9844 WP(C) NO. 2956 OF 2025 19 APPENDIX OF WP(C) 2956/2025 PETITIONER EXHIBITS Exhibit P1 A TRUE COPY OF THE COMMUNICATION DATED 23-12-2024 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER Exhibit P2 A TRUE COPY OF THE RELEVANT PORTIONS OF MARKETING DISCIPLINE GUIDELINES, MAY-
2022Exhibit P2(A) A TRUE COPY OF JUDGMENT DATED 12-12- 2024 IN WP(C) NOS.9331/2020, 9360/2020, 9383/2020, 26790/2021, 30986/2023, 22290/2024 AND 22392/2024 PASSED BY THIS HON'BLE COURT Exhibit P3 A TRUE COPY OF THE SHOW CAUSE NOTICE DATED 21-10- 2024; ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER Exhibit P4 A TRUE COPY OF THE COMMUNICATION DATED 04-11-2024 SENT BY THE PETITIONER TO THE 3RD RESPONDENT