IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SEVENTEENTH DAY OF FEBRUARY TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE C.V.RAMULU WRIT PETITION NO : 7235 of 2008 Between: M/s Haji Abdul Rehman Haji Abdulla, HPCL Dealers, D.NO.4/35, Thotada Village, NH-5 Road, R.S. Dusi, Srikakulam District. Rep. by its Partner Mr. Mohammed Mahaboob Basha, S/o. Md. Mahamood, aged about 38 Years. ..... PETITIONER AND 1 Hindustan Petroleum Corporation Ltd., Rep. by its General Manager, 17, Jamshedji Tata Road, Mumbai-400020. 2 The Chief Regional Manager & Duty Constituted Agency, Hindustan Petroleum Corporation Ltd., Visakha Regional Office, " Petro Nilayam", Post Box No.135, Visakhapatnam. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue a writ of Mandamus or any other appropriate writ or direction declaring the proceedings of the 2nd respondent passed in VRO/TAK/LVR/RET dated 07.03.2008 as illegal, arbitrary and violative of principles of natural justice and Article 21 of the Constitution of India. Counsel for the Petitioner:MR.S.V.BHATT Counsel for the Respondents: MR.M.RAVINDRANATH REDDY The Court made the following : THE HON’BLE SRI JUSTICE C.V. RAMULU W.P. No. 7235 of 2008 O R D E R: This writ petition is filed seeking Mandamus declaring the proceedings of the 2nd respondent in VRO/TAK/LVR/RET dated 7.3.2008 as arbitrary, illegal and violative of principles of natural justice and Article 21 of the Constitution of India. It appears, the petitioner is a partnership firm and was appointed as dealer for the retail sale or supply of petrol/diesel of the 1st respondent Corporation at Thotada village location of Srikakulam District about 60 years ago. The agreement granted in favour of the petitioner firm was being renewed from time to time and the last renewal of the dealership licence agreement was renewed on 1.4.2003. According to the petitioner, ever since the date of grant of dealership licence, it was conducting business without contravening any of the conditions of the licence or statutory rules governing the field. While that being so, on 2.5.2007 the 2nd respondent issued a notice stating that the Executive Officer – QC wing (SZ) has inspected the premises of the petitioner and made certain observations during the inspection. They are: i) MS Pump metering unit W/M seal found cut. ii) Short delivery through MS & HSD dispensing units. iii) MS & HSD pump totaliser unit W/M seal not intact. Along with the notice, the random inspection report was also furnished, wherein it has been mentioned that MS service pump SR No. BS (L&T) 5540 metering unit weights measure seals wire found cut and sealing wire cut from metering unit MS delivery found short of 40 ml. per five liters. It has been further mentioned that the HSD pump SR No. KW3979 delivery found short of 40 ml. per five liters. The totalizer unit seal was not put properly, without tampering the W/M seal and wire, totalizer unit can be taken out and refixed as it is. On the basis of the above allegations, the petitioner was asked to show-cause within 7 days from the date of receipt of the notice. The petitioner also received another notice on 16.5.2007 reiterating the same allegations. The petitioner submitted a detailed explanation on 3.8.2007 denying the allegations leveled against it. It was stated that water was falling on the particular pump and leaking inside the pump. Since the dispensing unit is very old and during the inspection by the respondent-official the same has been broken in his hand. Further, at the time of inspection, the same has been brought to the notice of the officer and the petitioner was informed that similar problems are coming in other pumps also because of corrosion forming on the sealing wire and the petitioner was advised to stamp the metering unit immediately under the Weights and Measures Inspector’s supervision, and the said stamping job was carried out by the works and metering inspector. After the explanation was submitted, another show-cause notice has been issued on 26.9.2007 reiterating the same allegations that were leveled earlier and further quoting the clauses in the dispensing and licencing agreements. The petitioner submitted detailed explanation on 5.11.2007 denying the allegations stating that it had not violated any of the conditions of the agreement and requested to drop further proceedings in the matter. According to the petitioner, the 2nd respondent, without considering the explanation in proper perspective had passed the order dated 7.3.2008 terminating the dealership agreement dated 1.4.2003. The 2nd respondent held that the petitioner had not reported nor gave any complaint about the rain water entering into the pump prior to the letter seeking explanation and that many retail outlets in the country are much older than theirs and running perfectly and the reasons that have been given are not valid. Further, the Inspection Officer has reported that the partner of the petitioner signed the said inspection report and it must be deemed that the petitioner has accepted the contents therein, thus, the petitioner had committed major violations. According to the petitioner, the action of the 2nd respondent in passing the impugned order is arbitrary and illegal. A detailed counter affidavit has been filed by the respondent denying the allegations made by the petitioner and it is further asserted that the Corporation noted the fact that petitioner-Outlet had never reported to the Corporation that there was leakage of rain water into the pump before the Inspection on 16.4.2007. On the other hand, as stated by the petitioner, the earlier Inspection on 16.3.2007 showed that there were no irregularities observed. The Inspection Report dated 16.3.2007 bears testimony to the fact that there was no irregularity in respect of the seals or delivery from the dispensing units. This clearly demonstrates that it was only between 16.3.2007 and 16.4.2007 that the irregularities were generated. Further, there was no record of breaking of the seal in the hands of the Q.C. Officer in the Random Inspection Report dated 16.4.2007. No incidents of breaking of seals because of rainwater and the alleged corrosiveness resulting therefrom were ever reported by any of the other Dealers. It was also noted that the petitioner-Outlet Dealer had offered an explanation only for the first of the three irregularities pointed out in the letter dated 2.5.2007. Accordingly, a show-cause notice was issued to the petitioner on 26.9.2007 citing the irregularities noticed during the inspection on 16.4.2007 and the consequent violation of the various clauses of the Dealership Agreement dated 1.4.2003. The petitioner submitted an explanation on 5.11.2007 reiterating its earlier stand that rainwater was entering into the pumps and as the dispensing units were very old, the thin sealing wire was damaged and due to that only, the W/M Seal was found to be not intact. Curiously, the petitioner changed its earlier stand that the seals had broken in the hands of the Q.C. Officer and now stated that the same was noticed by them when the Q.C. Officer opened the Dispensing Unit. As regards the short delivery of the product, the petitioner adopted the plea that the Dispensing Pumps were very old and accordingly there might have been some variation. The petitioner concluded with a request to drop all further proceedings. As the explanation of the petitioner was found to be thoroughly unsatisfactory and self-serving, the Corporation was constrained to issue the impugned proceedings terminating the Dealership Agreement dated 1.4.2003, citing the violation of Clause Nos. 16, 22, 42 & 55 of the said Agreement. The said action is lawful, justified and very much warranted by the irregularities detected at the petitioner Outlet, which are ultimately detrimental to the interest of the consumer, the unsuspecting common man, who would be cheated in terms of quantity. The writ petitioner is devoid of merits and is liable to be dismissed. Learned counsel appearing for the petitioner strenuously contended that firstly the clauses invoked are not applicable to the case on hand as no such allegations were made against the petitioner either in the notice dated 2.5.2007 or 26.9.2007. Secondly, the charges are as vague as they could be and does not satisfy any of the ingredients of the clauses invoked. Thirdly, the principles of natural justice are violated since the statements made by either the Inspecting Officer or the petitioners were not verified. Immediately after the Inspection on 16.4.2007, as advised by the Inspecting Officer, the seals were refixed and thereafter explanation was offered on 3.8.2007. The charges as noticed above are as vague as they could be and the charge memo dated 26.9.2007 further reiterated the clauses in the agreement, but there is no specific charge to meet the violation contemplated in the clauses. The respondents have simply asked for the explanation and passed the impugned order without conducting a detailed enquiry giving opportunity to the petitioner either to cross-examine or to disprove the allegations made against it. This itself shows that the respondents are bent upon imposing the punishment of termination of agreement without properly conducting an enquiry which could satisfy the principles of natural justice and the fair procedure known to law, apart from the fact that the petitioner never involved in any such misconduct earlier. Even assuming that the charges are true and correct, the punishment of termination, in the given facts and circumstances of the case, is disproportionate to that of the misconduct. This is not a case of adulteration or that any manipulation or mala fide intention is attributed or proved against the petitioner. Therefore, the impugned order is liable to be quashed. Per contra, learned counsel appearing for the respondents strenuously contended that just one month prior to the date of present inspection i.e. on 16.3.2007, an Inspection was conducted and everything was found to be in order and how is that in the Inspection conducted on 16.4.2007 there is a breakage of seals and short-delivery of 40 ml. per 5 liters, is unimaginable. The petitioner never complained as to entering of the water into the pump and causing damage to the seals. That was not the explanation of the petitioner when it submitted its explanation to the show-cause notice dated 2.5.2007. On the other hand, it had stated that the seal was broken in the hands of the Inspecting Officer himself and the petitioner had further improved its case in the explanation offered to the show-cause notice dated 26.9.2007, on 5.11.2007. No consistent stand is taken by the petitioner and the short delivery as a result of breakage of seal was admitted by the petitioner and once the facts are admitted, the question of proving the admitted facts does not arise. The respondents have followed the procedure as per law and no mala fides have been attributed to the respondents. Further, the stand taken by the petitioner in the explanation submitted on 5.11.2007 was an afterthought. Therefore, the respondents have rightly come to the conclusion that there was violation of the agreement clauses and therefore the agreement is liable to be terminated. Whether the Inspecting Officer was examined in the enquiry or the petitioner was permitted to lead evidence are all irrelevant factors. Simply because the officer was not examined, that itself does not mean that the report submitted by him was not correct. In fact, the petitioner signed the said Inspection Report, therefore, all the contents therein were accepted to be correct. No principles of natural justice are violated. Further, though no Rules for conducting the enquiry in such cases were framed, the entire matter was dealt with as per the guidelines issued by the respondents. Therefore, the writ petition is devoid of merit and liable to be dismissed. I have given my earnest consideration to the respective submissions made by the learned counsel on either side and perused the impugned proceedings and other material made available on record. The fact that the petitioner has been running the retail dealership of supply of petrol/diesel of the 1st respondent Corporation at Thotada village is not in dispute. It is also not denied that the petitioner had not involved in any misconduct of such nature and its agreement was terminated at any point of time. Further, no Rules have been framed under the Act for the purpose of conducting an enquiry into the allegations made against the retailers for the purpose of taking disciplinary proceedings such as termination of dealership etc. The respondents have stated that they have certain guidelines and the entire guidelines have been followed scrupulously. Coming to the notice dated 2.5.2007, only three simple un- narrated charges are framed against the petitioner, which are as follows: i) MS Pump metering unit W/M seal found cut. ii) Short delivery through MS & HSD dispensing units. iii) MS & HSD pump totaliser unit W/M seal not intact. No details are given. Therefore, the petitioner has simply submitted the explanation denying the allegations leveled against it and further stated that water is falling on the particular pump, leaking into the pump, and the dispensing unit is very old and during the inspection by the respondent officials the same was broken in their hands. Therefore, it cannot be said that there was any inconsistency by the petitioner while submitting the explanation on 3.8.2007. On 26.9.2007 it was only further explained as to how the pump became old one and there was junk, that it had broken as water was going inside the pump and that the seal was broken at the time of inspection by the Officer concerned. Insofar as the charge memo dated 26.9.2007, it is an improvement to that of the earlier notice dated 2.5.2007. In the notice dated 2.5.2007, no details were furnished and only in the show-cause notice dated 26.9.2007 all the details were furnished as to the incidents as mentioned in the notice dated 2.5.2007 and further explanation was called for. The petitioner submitted its explanation, firstly, saying that the facts do not call for invoking such provisions for the purpose of terminating the dealership agreement held by the petitioner. A fair look at the show-cause notice and the impugned order would show that absolutely no evidence was placed to prove that the petitioner was guilty of the charges except the Inspection report submitted by the Officer concerned. The charges in the memo dated 2.5.2007 are as vague as they could be and it appears, only to avoid further trouble the respondents have issued a detailed charge memo dated 26.9.2007 and called for the explanation and the petitioner had submitted its explanation. For this, the petitioner cannot be blamed and it is not expected that the petitioner would submit a detailed explanation without there being a detailed charge framed against it. Simply because the petitioner has stated that the seal was broken and there was shortage as noticed by the respondents, it cannot be said that the same was committed by the petitioner. No mala fide intention was alleged against the petitioner in doing so except saying that there was short delivery to deceive the innocent consumers. The statement of the petitioner that the seal was broken when the inspection was conducted by the Inspecting Officer is not controverted by any oral or documentary evidence. The clauses mentioned in the show-cause notice or the termination order do not specify any of the ingredients of the notice dated 2.5.2007 or the charge memo dated 26.9.2007. Except repeating the clauses, nothing was made out to satisfy the ingredients of those individual clauses. I am of the opinion that the respondents could not have found the petitioner guilty of the charges without there being any evidence let in by them to prove the charges against the petitioner by examining the Inspecting Officer and giving an opportunity to the petitioner to cross-examine and adduce further evidence, if necessary. No such step was taken in this case. On the other hand, it is submitted that no Rules have been framed, therefore, whatever procedure followed by the respondents is fair enough and the petitioner can be held to be guilty of the charge and, therefore, the termination is valid. I am afraid, I may not be able to agree with this submission made by the learned counsel for the respondents. Here, it may be appropriate to notice the decision reported i n Mahabir Auto Stores and others v. Indian Oil Corporation and others[1], which reads as under: “The State acts in its executive power under Article 298 in entering or not entering in contracts with individual parties. Article 14 applies to exercise of such power. Decision of the State/public authority under Article 298 is an administrative decision and can be impeached on the ground that it is arbitrary or violative of Article 14 or any of the grounds available in public law field. (paras 12 and 18). In cases where the instrumentality of the State enters the contractual field, it should be governed by the incidence of the contract. But even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non- discrimination in the type of the transactions and nature of the dealings as in the present case. Every action of the State or an instrumentality of the State in exercise of its executive power must be subject to the rule of law and be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32. Though it may not be necessary to give reasons but in the field of this nature fairness must be there to the parties concerned. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. Rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. However, Article 14 cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. Whether a case involves public law or private law rights depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any strait jacket formula. (paras 12 and 20). The existence of the power of judicial review however depends upon the nature and right involved in the facts and circumstances of the particular case. Existence of “malice in law” is part of the critical apparatus of a particular action in administrative law. It is part of the dimension of the rule of relevance and reason as well as the rule of fair play in action. (para 13). Whether a case involved public law or private law rights depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any strait jacket formula. It would depend upon the factual matrix as to whether the case was one of the arbitrary exercise of “power” or exercise of a “right” arising either under a contract or statute. However, such exercise of power cannot be dealt with by the State or the instrumentality of the State without informing and taking the affected into confidence. In such situations most often people feel aggrieved by exclusion of knowledge if not being taken into confidence. (paras 17 and 18)”. In a case of this nature, mere charge and explanation are not sufficient to hold the petitioner guilty of the alleged act. It could have been fair on the part of the respondents had the Inspecting Officer was called and examined in the matter and the petitioner was permitted to cross-examine to elicit the truth or otherwise as to breaking of the seal. Such a procedure was never followed. Therefore, I am of the opinion that the enquiry conducted by the respondents in holding the petitioner guilty is in utter violation of the principles of natural justice apart from being violative of the fair procedure to be adopted in a case of this nature, where the civil consequences are involved. Therefore, the impugned order is liable to be set aside by declaring the same as arbitrary and illegal. Accordingly, the impugned order is set aside and the writ petition is allowed. No order as to costs. _______________ JUSTICE C.V. RAMULU. Date: -02-2009. MVB. [1] (1990) 3 SCC 752