M/s. Agrawal Fuels vs Indian Oil Corporation Limited and Another

Satish K. Agnihotri, J.—Feeling aggrieved by the order dated 21.08.2012 (Annexure P-1) passed by the Appellate Authority, Indian Oil Corporation Limited (for short ''the IOCL''), Mumbai, whereby, the termination of the Retail Outlet (for short "R.O.") allotted to the petitioner was terminated on 15.03.2012 was confirmed, the petitioner has filed this petition. The brief facts, in nutshell, are that under the agreement dated 05.12.2008 (Annexure P/2) executed between the petitioner and respondent, the petitioner was appointed as dealer of R.O. namely M/s. Agrawal Fuels at Rajnandgaon, as Dealer Controlled Outlet for sale of Petrol (MS)/High Speed Diesel (HSD) of IOCL. The inspection of R.O. was conducted by the Deputy Sales Officer/Field Officer (for short ''the FO'') on 27.06.2011. No irregularities were noticed. On the next date, i.e. 28.06.2011, again a surprise checking was conducted by the same officer in absence of the petitioner. While carrying out the inspection at a nearby R.O., he received a call from Industry Mobile Lab that there was some automation problem in pumps and, as such, the same is not in operation. The F.O. rushed to the R.O. and found that automation was not working. He immediately put machines in manual mode and mobile lab took the sample of MS & HSD. The sample of the HSD failed, however, MS passed. As per the guidelines, the Mobile Lab drew three samples of HSD out of which one was handed over to the FO for sending to static lab for testing. Mobile Lab also took TT retention sample of last two loads and subsequently handed over to the FO. The FO thereafter carried out inspection of the RO and found negative stock variation in MS beyond permissible limits and positive stock variation in HSD beyond permissible limits. Sales and supplies of all products were immediately stopped. A show cause notice was issued to the petitioner on 06.07.2011 which was replied to by the petitioner on 13.07.2011. Thereafter, again a show cause notice for termination of dealership was issued to the petitioner by the respondent/Corporation on 04.11.2011 (Annexure P/4) which was replied to by the petitioner on 16.11.2011 (Annexure P/6). Subsequently, by order dated 15.03.2012, the dealership agreement dated 05.12.2008 was terminated by the respondent authorities. Against the said order, the petitioner preferred an appeal before the respondent No. 2 on 07.04.2012 (Annexure P/12). In the meantime, a writ petition, being W.P. (C) No. 1361/2012 was filed before this Hon''ble Court, which was disposed of with a direction to the respondent No. 2 to consider and decide the pending appeal within a period of one month. Thereafter, the said appeal was considered and decided by the respondent No. 2 dismissing the appeal of the petitioner by the impugned order dated 21.08.2012 (Annexure P/1). Thus, this petition.

Shri Sharma, learned counsel appearing for the petitioner submits that not a single test of HSD of outlet of petitioner was conducted in presence of the petitioner. The petitioner, right from the beginning had been making prayer for testing of HSD sample of his RO and transporter tank trolley retention sample, in his presence as per the procedure prescribed in Marketing and Discipline Guidelines, 2005 (for short ''the MDG, 2005''). The principles of natural justice has been violated. Shri Sharma would further submit that in its reply to the notices, the petitioner had clarified the situation as to under what circumstances, the HSD could have been adulterated, firstly, the depot itself from where the HSD is being lifted by the transporter/truck lorry owner, during the transportation by the truck/lorry and thirdly, from the retail outlet of dealer and for the above purpose, three retention samples were drawn at the each stage from Depot, from tank lorry and from the RO. When all the samples are tested and only the RO sample fails, then the dealer can be held guilty, therefore, testing of at all three stages retention sample is a must in presence of dealer. The request of the petitioner for testing of lorry/truck retention sample was turned down initially on the ground that the lorry/truck owner was not ready for the same, whereas no such consent from the owner is required and secondly despite filing application alongwith consent of lorry/truck owner, till date, no answer has been given. Even no testing report was attached alongwith the notice dated 04.011.2011, however, in the notice it has been shown that the report is attached with it. After making repeated efforts, the petitioner was called for re-testing of dealer retention sample of HSD on 08.02.2012 at Nishatpura Lab, Bhopal. The retention sample was handed over by the petitioner to the Lab authorities, which was accepted without any demur or protest but after few hours, the sample was returned to the petitioner alleging that the sample tag pasted on wooden box was torn off. Even as on today, 6600 liters of HSD is still lying in the sealed underground tank of the petitioner in his RO which can be tested in accordance with law.

Shri Sharma would further submit that on 27.06.2011, a surprise inspection was conducted by FO who gave satisfactory report that the HSD was proper and gave a report that the density level of HSD was within the permissible limit and within 24 hours, the same FO again inspected the RO of the petitioner and gave a negative finding which is highly suspicious. So far as the testing at Nishatpura Lab of HSD sample is concerned, no notice at all was issued by the IOCL nor any information was sent in this regard and the test has been conducted behind the back of the petitioner and the said report has been made the basis for termination of his RO dealership. Shri Sharma would next contend that the Supreme Court has framed guidelines and the manner in which the testing of samples has to be done in Hindustan Petroleum Corpn. Ltd. and Others Vs. Super Highway Services and Another, . In the instant case, the action of the respondents is against the law laid down by the Supreme Court. Thus, the impugned order deserves to be quashed.

On the other hand, Shri Anand Shukla, learned counsel appearing for the respondent/IOCL would submit that clause 61 of the agreement provides for arbitration and as such, when there is an arbitration clause in the agreement, then in that event, the petitioner ought to have sought such remedy by referring the dispute to the Arbitrator, thus, this petition under Article 226 of the Constitution of India, would not be appropriate forum for the decision of the disputed questions involved herein. Shri Shukla would submit that proper procedure has been followed in testing the samples of the RO of the petitioner and after affording proper opportunity of hearing, when it was found that samples were not as per the standards of the IOCL, the dealership was terminated. There density of the HSD failed, kinematic viscosity was observed at 1.947 against the limit range of 2.0-4.5, and there was stock variation of HSD beyond permissible limits i.e. there was 2099 liters of HSD against the permissible limit of 268 liters. As per the report of the Filed Officer dated 28.06.2011, samples of HSD nozzle, last two loads of Tanker Truck retention sample and depot sample were collected as per the procedure and the same were sent for testing at Nishatpura Lab on 02.07.2011. The same failed in density, kinematic viscosity and sulpher content test. At the time of inspection, the petitioner was present and after knowing that the samples have failed, the petitioner started creating hurdles in the inspection and complained of chest pain and was taken to his residence and the test report was signed by the son of the petitioner. On the request of the petitioner, to test the sample, it was handed over to him, lab test at Nishatpura lab was scheduled on 08.02.2012 to give a fair chance to the petitioner. The petitioner presented the retention sample for re-testing in presence of Lab Incharge, Mobile Lab Officer and Field Officer. The same could not be re-tested as the sample tag pasted on the retention wooden box was found torn off on the latch. The petitioner was duly noticed before termination of the dealership agreement and after considering the reply submitted by the petitioner, it was concluded that there was stock variation beyond permissible limit and there was adulteration in the HSD. Such act of the petitioner is in violation of the terms and conditions of the agreement dated 05.12.2008, MDG 2005 and also prejudicial to the interest and goodwill of the IOCL. Even in an appeal preferred by the petitioner, the appellate authority has considered all the aspects and after perusing the relevant records, documents, gave a concurrent finding.

Shri Shukla would further submit that the excuse taken by the petitioner that there could have been water filled in the underground tank thus, there was a variation of stock, cannot be accepted. If there was any water present in the underground tank of HSD, the traces of water would have been visible, however, nothing as such was found. No report shows presence of any water content in the samples. The last two loads of tanker truck retention sample and depot sample were collected as per the procedure and the same were sent to Nishatpura Lab, which after testing was found to be adulterated, as aforestated The samples taken from the tanker truck has passed all the tests which shows that the adulteration was done in the underground tanker at the RO itself. The action of the petitioner was in contravention of clause 6.1.1 and 6.1.10 of the MDG, 2005 and also in contravention of clause 17, 45(1) of the agreement dated 05.12.2008. So far as request of testing the samples of the tanker truck is concerned, the said sample had already passed in the Lab test, thus, it was not required to test the Tanker Truck sample again. However, the sample produced by the petitioner was brought in a wooden box, the seal of which was found to be tampered, and as such, there was no reason to test the said sample. Thus, there is no irregularity or illegality in terminating the dealership of the petitioner.

Heard learned counsel appearing for the parties, perused the pleadings and documents appended thereto.

The question of applicability of arbitration clause under the agreement does not arise in the instant case as it appears that the respondents have not raised the issue of referring the dispute to the Arbitrator before the appellate authority. The appellate authority has considered the case without adverting to application of arbitration clause as pleaded by the respondents.

Clause 61 of the agreement dated 05.12.2008 provides for that any dispute or difference of any nature whatsoever, any claim, cross claim, counter claim, or set off or regarding any right, liability, act, omission, on 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 Director (Marketing). However, the question of termination of dealership does not come within the ambit of arbitration clause and as such, submission of the respondents for the first time that the writ petition is not maintainable in view of the availability of clause 61 of the agreement, cannot be countenanced.

In Harbanslal Sahnia and Another Vs. Indian Oil Corpn. Ltd. and Others, , the Supreme Court observed as under:

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). The present case attracts applicability of the first two contingencies. Moreover, as noted, the petitioner''s 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.

The facts are indisputable that the tests were done at Nishatpura Lab, Bhopal, without any notice or information to the petitioner, on 02.07.2011. Subsequent notice for test on 08.02.2012 was not proper as no test was conducted on the said date on the ground that the sample retained by the dealer was not intact and the seal on the latch of the wooden box in which the sample was retained, was torn off.

The purpose of retaining a sample by the dealer is that in case of sample failure and in the event of request for testing by the dealer, the same is to be considered by the State Office/Regional Office/Zonal General Manager of the concerned oil company as provided under clause 2.5 of the MDG, 2005, which reads as under:

2.5 General points to be observed in all cases:

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D) In case of sample failure, in the event of request for testing by the dealer, the same to be considered on merit by the State Office/Regional Office/Zonal General Manager of the concerned oil company. If approved by GM, the sample of retail outlet retained by the dealer alongwith the counter sample retained with the Field Office/Oil Company are to be tested as per the guidelines, preferably in presence of the Filed Officer, RO dealer/representative & representative of QC Dept. of the Oil Co. after due verification of the samples. All the 3 samples should be tested only in the same lab, and if possible by the same person to ensure repeatability and reproducibility. The expenditure incurred for such testing should be recovered from the dealer. The decision of the GM, which would be based on the test results of all the 3 samples would be decisive and binding on all.

Original clause 8 of the Motor Spirit & High Speed Diesel (Regulation of Supply, Distribution & Prevention of Malpractices) Order 2005 (for short ''the Order, 2005) reads as under:

Sampling of Product.-(1) The authorized under clause 7 shall draw the sample from the tank, nozzle, vehicle or receptacle, as the case may be, in clean aluminum containers to check whether density and other parameters of the product conform to the requirements of Bureau of Indian Standards specifications number IS 2796 and IS 1460 for motor spirit and high speed diesel respectively. Where samples are drawn from retail outlet, the relevant tank-truck sample retained by the dealer as per clause 3(b) would also be collected for laboratory analysis.

(2) The authorized officer shall take and seal six samples of 1 litre each of the motor spirit or three samples of 1 litre each of the high speed diesel. Two samples of motor spirit or one of high speed diesel would be given to the dealer or transporter or concerned person under acknowledgment with instruction to preserve the sample in his safe custody till the testing or investigations are completed. Two samples of Motor Spirit or one of High Speed Diesel shall be kept by the concerned oil company or department and the remaining two samples of Motor spirit or one of High Speed Diesel would be used for laboratory analysis;

(3) The sample label shall be jointly signed by the authorized officer who has drawn the sample, and the dealer or transporter or concerned person or his representative and the sample label shall contain information as regards the products, name of retail outlet, quantity of sample, date, name of the authorized officer, name of the dealer or transporter or concerned person or his representative;

(4) The authorized officer shall forward the sample of the product taken within ten days to any of the laboratories mentioned in Schedule III or to any other such laboratory when it may be notified by the Government in the Official Gazette for this purpose, for analyzing with a view to checking whether the density and other parameters of the product conform to the requirements of Bureau of Indian Standard specifications number IS 2796 and IS 1460 for motor spirit and high speed diesel respectively.

(5) The laboratory mentioned in sub-clause (4) shall furnish the test report to the authorized officer within twenty days of receipt of sample at the laboratory.

(6) The authorized officer shall communicate the test result to the dealer or transporter or concerned person and the oil company, as the case may be, within five days of receipt of test results from the laboratory for appropriate action.

Clause 8 of the Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution & Prevention of Malpractices) Amendment Order 2007, (for short ''the Amendment Order, 2007'') published by notification dated 12/1/2007 reads as under:

G.S.R. 18(E).-In exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955 (10 of 1955) the Central Government hereby makes the following order to amend the Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005, namely;

1.(1) This Order may be called the Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Amendment Order, 2007.

(2) It shall come into force on the date of its publication in the Official Gazette.

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(3) In the said order, in clause 8.---

(a) for the heading "sampling of product", the heading "sampling of product and testing" shall be substituted.

(b) after the heading and before the sub-clause (1), the following sub-clause shall be inserted, namely:-

(1A) The authorized officer under clause 7 shall draw the sample from the tank, nozzle, vehicle or receptacle, as the case may be, in the test kit and test the product with the aid of test kit, to check whether the product contains any traces of marker. If such traces are found in the product, the authorized officer shall record the same in triplicate which shall be jointly signed by him and the dealer or transporter or concerned person or his representative, as the case may be, and give one copy of such recording to the dealer or transporter or concerned person or his representative and another copy to the oil company concerned, as the case may be".

(c) in sub-clause (1), for the words, "the authorized", the following shall be substituted, namely:-

Where the product does not contain marker under sub-clause (1A), the authorized officer

G.S.R. 19(E).-In exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955 (10 of 1955) the Central Government hereby makes the following order further to amend the Kerosene (Restriction on Use and Fixation of Ceiling Price) Order, 1993, namely:--

1.(1) This Order may be called the Kerosene (Restriction on Use and Fixation of Ceiling Price) Amendment Order, 2007.

(2) It shall come into force on the date of its publication in the Official Gazette.

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(3) In the said order, after clause 8, the following clause shall be inserted, namely:-

8A. Kerosene to be blended with marker-All kerosene sold in India, whether under the public distribution system or parallel marketing system, shall be blended with marker at five parts per million (ppm) concentration with the objective of preventing its diversion or adulteration of other petroleum products.

Identical issue came up for consideration before this Court in case of Mahamaya Service Centre v. Indian Oil Corporation Ltd. & Others W.P. (C) No. 1668/2009, decided on 09.09.2010, wherein this Court held that provisions of clause 8 of the Order, 2005 read with MDG, 2005 have not been complied with, thus, the respondents cannot claim any sanctity in law and the court is well within its jurisdiction to declare such an act illegal and invalid. This Court also observed as under:

It is a duty cast on the authorities of the State and the instrumentalities of the State that they should follow the proper procedure prescribed in the rules and regulations. The contravention of the same cannot be permitted. It is uncontroverted legal position that where a statute requires to do a certain thing in a certain way, the thing must be done in that way or not at all.

The aforesaid matter was taken to the Division Bench of this Court which was dismissed by order dated 03.01.2011 passed in W.A. No. 361/2010 and a SLP against the same, being Special Leave to Appeal (Civil) No. 34817/2011, was also dismissed on 04.11.2011.

The Supreme Court, in the matter of M/s. Hindustan Petroleum Corpn. Ltd. & Others (supra), has considered the similar issue of termination of dealership in the similar set of facts and circumstances, wherein the Supreme Court has held as under:

The cancellation of dealership agreement of a party is a serious business and cannot be taken lightly. In order to justify the action taken to terminate such an agreement, the concerned authority has to act fairly and in complete adherence to the rules/guidelines framed for the said purpose. The non-service of notice to the aggrieved person before termination of his dealership agreement also offends the well-established principle that no person should be condemned unheard. It was the duty of the petitioner to ensure that the Respondent No. 1 was given a hearing or at least serious attempts were made to serve him with notice of the proceedings before terminating his agreement.

The guidelines being followed by the Corporation require that the dealer should be given prior notice regarding the test so that he or his representative also can be present when the test is conducted. The said requirement is in accordance with the principles of natural justice and the need for fairness in the matter of terminating the dealership agreement and it cannot be made an empty formality. Notice should be served on the dealer sufficiently early so as to give him adequate time and opportunity to arrange for his presence during the test and there should be admissible evidence for such service of notice on the dealer. Strict adherence to the above requirement is essential, in view of the possibility of manipulation in the conduct of the test, if it is conducted behind the back of the dealer.

The authorities have not cared for the guidelines laid down by the Supreme Court in Hindustan Petroleum Corporation Limited & Others (supra) and also the provisions of the Order, 2005 and the MDG, 2005. It is informed at the bar that the sealed tank containing HSD is still available at the RO of the petitioner. The authorities may take out a sample and can complete the test at the static laboratory in the presence of the petitioner, before taking a final decision.

Applying the well settled principles of law to the facts of the case, the impugned order dated 21.08.2012 (Annexure P/1) passed by the respondent No. 2 is not sustainable in the eyes of law and is accordingly quashed. Resultantly, the writ petition is allowed. No order as to costs.