Mongam Indane Services vs Indian Oil Corporation Ltd

N. Nagaresh, J

The 1st petitioner in these writ petitions is a Partnership Firm of which petitioners 2 and 3 are Partners. W.P.(C) No.1058/2022 has been filed by the petitioners seeking to direct the respondents, who are Indian Oil Corporation Limited and its Chief Area Manager, to provide regular and uninterrupted supply of LPG to the petitioners as and when orders are placed with sufficient funds to meet the bills. The petitioners seek adequate opportunity of personal hearing on Exts.P1 and P2 before passing any final order in the matter.

W.P.(C) No.1993/2022 has been filed seeking to quash Ext.P15 order and to direct the respondents to restore the entire consumers of the 1st petitioner's Distributorship with all present bookings for refill and fresh connections, as on 06.01.2022 to the 1st petitioner forthwith, and consequentially to provide regular and uninterrupted supply of LPG to the petitioners, as and when orders are placed with sufficient funds to meet the bills.

The petitioners state that the 2nd petitioner was selected as Distributor for supply of LPG of the 1st respondent-Indian Oil Corporation Limited. The 2nd petitioner was given Distributorship under GP Category consequent to the demise of her father while in Government service. Ext.P1 dated 25.06.2015 is the Letter of Intent issued to the 2nd petitioner. The 2nd petitioner invested the entire capital expenses for establishment of infrastructure facilities of the Distributorship.

On 05.04.2019, the 2nd petitioner entered into Ext.P2 partnership with the 3rd petitioner and one Sri.Binu V.M. The partnership was constituted with the prior approval of the 1st respondent and was in strict adherence to the Reconstitution Guidelines, 2018 issued by the 1st respondent. A new Distributorship Agreement dated 04.04.2019, Ext.P3, was entered into between the partnership and the 1st respondent-Corporation.

The petitioners state that the said Binu V.M. was convicted for offences punishable under Abkari Act, on 25.05.2019. The offences were committed on 18.04.2019. Immediately, the 1st petitioner sought permission of the 1st respondent-Company to change the constitution of the Firm by removing Binu V.M. from the partnership. The 2nd respondent-Area Manager, however, took a stand that the offences for which Binu V.M. was convicted do not involve any moral turpitude and hence reconstitution is not warranted. The decision was communicated to the petitioners on 24.12.2020, as per Ext.P5.

The petitioners state that on verification of the accounts, it was found that Binu V.M. has committed financial irregularity and misappropriation of funds of the partnership. Therefore, Ext.P6 show-cause notice dated 09.01.2021 was issued by the petitioners. Binu V.M. did not give satisfactory reply. Therefore, petitioners 2 and 3 being majority Partners, expelled Binu V.M. from the partnership. The expulsion was communicated to Binu V.M. as per Ext.P8 communication dated 25.01.2021.

Annoyed by Ext.P8, Binu V.M. prevailed upon the respondents and the 1st respondent stopped the internet banking facility of the Firm's current account with the State Bank of India. Though the petitioners filed W.P.(C) No.3110/2021, the said writ petition was dismissed by this Court as per Ext.P9 judgment holding that a writ petition under 226 of the Constitution of India cannot be invoked to resolve dispute between Partners of a Firm.

The petitioners have been accepting remittances from the customers through online payment to the credit of its PAD account with the 1st respondent. The 1st respondent issued Ext.P10 show-cause notice dated 02.07.2021 to petitioners 2 and 3 proposing to terminate the Distributorship. On 15.07.2021, an officer of the 1st respondent sent an amendatory letter in partial modification of Ext.P3 Distributorship Agreement. Petitioners 2 and 3 signed the letter. At that time, Sri.Binu V.M. had not signed the letter. But, when a copy of Ext.P11 amendatory letter dated 04.04.2019 was issued to the petitioners, it contained the signature of Binu V.M.

Petitioners 2 and 3 submitted Exts.P12 and P13 replies dated 30.07.2021, to Ext.P10 show-cause notice. No hearing was, however, conducted. All of a sudden, from 07.01.2022 onwards, the respondents stopped selling LPG to the 1st petitioner. Hence, the petitioners filed W.P.(C) No.1058/2022. When the writ petition was being moved on 12.01.2022, the respondents served a copy of Ext.P15 termination order, terminating the distributorship.

The petitioners state that Ext.P15 termination order has been issued without hearing the petitioners and it violates the principles of natural justice. Fundamental rights guaranteed to the petitioners under Article 19(1)(g) and Article 21 are infringed. The allegation made in Ext.P15 that petitioners 2 and 3 violated Clause 23(c)(iii) and (iv) and 28(b)(ii) of Ext.P3 agreement is incorrect. Expulsion or retirement of a Partner on sufficient grounds, is not prohibited under Clause 23.

Clause 17 of Ext.P2 Partnership does not require prior consent of the 1st respondent-Corporation when expulsion of a Partner is an involuntary act. A conjoint reading of Clause 12 and Clause 17 would show that Clause 12 supersedes Clause 17 in the event of breach of conditions in Clause 12. Therefore, a written consent or concurrence of the Corporation is not required to expel a Partner. Expulsion of a Partner does not amount to reconstitution of the Firm as contemplated in Clause 17 and therefore a consent or concurrence of the 1st respondent-Corporation is not warranted.

The petitioner further argued that Section 33 of the Indian Partnership Act gives power to majority Partners to expel a Partner, to protect the interest of the Firm and to prevent mischief. When petitioners 2 and 3 exercise such a statutory power, the respondents cannot contend that their prior consent is required.

The petitioners further pointed out that the 1st respondent has not accepted the expulsion of Binu V.M., as is evidenced from Ext.P11 and therefore the 1st respondent has no cause of action to terminate the Distributorship.

The respondents have stated that the 2nd petitioner has made a false declaration and suppressed material fact relating to her marriage, while submitting application for Distributorship. The 2nd petitioner got married on 09.09.2012, but the marriage was registered subsequently. The decision of the 1st respondent in Ext.P15 relating to the date of marriage of the 2nd petitioner and her status as on the date of application is incorrect and unwarranted. The respondents are therefore compellable to restore the entire consumers of the 1st petitioner's Distributorship with all present bookings. Ext.P15 is liable to be quashed.

The respondents resisted the writ petitions filing counter affidavit. There is no public law element involved in termination of the Distributorship and hence a writ petition is not maintainable, contended the respondents. Ext.P2 Partnership Deed and Ext.P3 Distributorship Agreement were executed by petitioners 2 and 3 along with Binu V.M.

The 2nd petitioner was given LPG distributorship treating her as GP category (Central / State Government and Central / State PSU employee). Ext.R1(a) Guidelines for selection of regular LPG distributors, in Clause 22, provides that if any statement made in the application is found to have been suppressed/misrepresented/incorrect or false affecting eligibility, then the application is liable to be rejected and the Distributorship is liable to be terminated.

In  her  application  for  Distributorship,  the  2nd petitioner applied as a dependent of her father who passed away on 27.04.1996. The 2nd petitioner recorded her marital status as “Single” at the time of applying. When a complaint was received from Binu V.M., the respondents made enquires and it was found that the 2nd petitioner was not “Single” as on 29.08.2011 when the application for Distributorship was submitted. As is evident from Ext.R1(e), the 2nd petitioner's marriage was solemnised on 24.04.2008. The 2nd petitioner had submitted false information regarding her marital status, at the time of application. This was in violation of Clause 28(1) of Ext.P3 agreement. This made the Distributorship awarded to the petitioners liable to be terminated.

The reconstitution policy of the respondents permits reconstitution of firms only after three years of commissioning of Distributorship. The 1st respondent-Firm was commissioned on 12.04.2019. The application for reconstitution was made within the three year period and therefore request for reconstitution made by petitioners 2 and 3 could not have been accepted. Ext.P15 termination order is therefore legal and valid, urged the respondents.

I have heard the learned counsel for the petitioners and the learned Standing Counsel representing the respondents.

The 2nd petitioner was granted Distributorship for supply of LPG, by the 1st respondent-Indian Oil Corporation Ltd. The distributorship was originally granted under GP category on 25.06.2015 as per Ext.P1 Letter of Intent. The 2nd petitioner entered into Ext.P2 partnership with the 3rd petitioner and Sri. Binu V.M. as Partners, on 05.04.2019, for the purpose of running the Distributorship. The said partnership was constituted with the approval of the 1st respondent-Corporation. The Partner Binu V.M. was expelled from the partnership in January, 2021. The 1st respondent-Corporation issued Ext.P10 show-cause notice on 02.07.2021. The 1st respondent terminated the distributorship on 07.01.2022, issuing Ext.P15, which order is under challenge.

The reason given in Ext.P15 for termination of the distributorship is twofold. Firstly, the 1st respondent found that the expulsion of Partner Binu V.M. is without the prior approval of the Corporation. Secondly, the 2nd petitioner at the time of applying for distributorship of LPG, had submitted wrong information regarding marital status.

Clause 23(c) of Ext.P3 distributorship agreement reads as follows:

(c) Except with the previous written consent of the Corporation:

(i) The Distributor shall not enter into any arrangement, contract or understanding whereby the operation of the Distributor hereunder are or may be controlled/carried out and/or financed by any other person, firm or Company, whether directly or indirectly and whether in whole or in part.

(ii) The Distributor himself (if he is an individual) or the partners themselves (if the Distributors is a partnership firm) or the whole time office Bearers/Elected Members (if the Distributor is a Co-operative Society) shall not, (without prior permission in writing of the Corporation) take up any other employment or engage in any other business apart from the operation of the distributorship which is the subject matter if this agreement.

(iii) The Distributor (if it a firm or a Co-operative Society) shall not effect any change in its constitution whether in the identity of its partners or appointment of whole time Office Bearers or Elected Members or in the terms of the Deed of Partnership or by the Bye-laws as the case may be.

(iv) The Distributor (if it be a private limited company) shall not cause or permit any group transfers or substantial change in its shareholding (transmission by death etc. excluded)

Sub-clause (iii) of Clause 23(c) mandates that the Distributor shall not effect any change in the constitution of the partnership except with the previous written consent of the Corporation. When the petitioners came to know about the conviction of Binu V.M. by a criminal court, the petitioners had sought permission of the 1st respondent-Corporation for reconstitution of partnership. However, the respondents held that reconstitution of partnership is not warranted since Binu V.M. was not convicted for any offence involving moral turpitude. The decision of the respondents was communicated to the petitioners as per Ext.P5 dated 24.12.2020.

But, the petitioners proceeded to expel the said partner Binu V.M. alleging financial irregularities and misappropriation of funds. The expulsion of a Partner from the Firm in effect changes the constitution of partnership, which requires previous written consent of the 1st respondent-Corporation. The prior consent was not obtained by the petitioners. Therefore, the petitioners have violated one of the agreement conditions and hence the respondents are justified in terminating the Distributorship Agreement.

The argument of the petitioners is that the term contained in Clause 23(c)(iii) “whether in the identity of its partners or appointment of whole time Office Bearers or Elected Members or in the terms of the Deed of Partnership or by the Bye-laws as the case may be” would take within its ambit only substitution of Partners and amendment of the terms of the partnership, and not expulsion or retirement of a Partner, cannot be accepted. Expulsion of a Partner would indeed change the identity of partnership.

The petitioners would urge that Clause 23(c)(iii) should be read along with the terms and conditions of Ext.P2 Partnership Deed. Clause 12 of Ext.P2 enables the Partners to oust any Partners for misconduct involving fraudulent conduct and misappropriation of funds. Ext.P2 is an agreement between the Partners of the 1st petitioner-Partnership Firm. The provisions contained therein cannot supersede the Distributorship Agreement entered into by the petitioners with the 1st respondent-Corporation, as contended by the petitioners. As far as the respondents are concerned, they will be justified in terminating the contract for violation of the terms contained in Ext.P3. The fact that petitioners 2 and 3 have only exercised their statutory power under Section 33 of the Indian Partnership Act, cannot alter the conditions contained in Ext.P3 to which petitioners 2 and 3 are signatories.

The petitioners would argue that since the respondents have not accepted the expulsion of Binu V.M., there is no cause of action to terminate the Distributorship Agreement. The argument is unacceptable because petitioners 2 and 3 have admittedly violated Clause 23(c)(iii) of Ext.P3 Distributorship Agreement. Ext.P15 therefore is in order.

The second reason put forth by the respondents for termination of Distributorship Agreement is regarding submission of wrong information in the application submitted by the 2nd petitioner, for obtaining the Distributorship. According to the respondents, in her application dated 29.08.2011 for LPG Distributorship under Government Personnel Category, the 2nd petitioner stated her marital status as “Single”. In the notarised affidavit dated 22.08.2011 filed in support of the application also, the applicant stated her status as “Single”. But, in the Marriage Certificate available in the Government of Kerala website, the 2nd petitioner’s marriage is shown as registered on 20.04.2008. Thus, there is a wrong statement made by the petitioner in her application for Distributorship.

The argument of the 2nd petitioner is that the registration made by the Registrar of Marriages is fictitious and there was no ceremonial marriage on 20.04.2008. This Court finds that the defence of the petitioners is too weak to stand. When a statutory authority registers a marriage, as long as the registration is not cancelled by known means of law, the marriage should be treated as one registered in accordance with law. A subsequent solemnisation/ registration of marriage under a different statute, cannot invalidate the marriage registered on 20.04.2008.

For the afore reasons, this Court is of the considered view that the respondents were justified in terminating the LPG Distributorship granted to the petitioners. The writ petitions therefore fail and are hence dismissed.