IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.W.P. No. 17874 of 2007 (O&M) Date of Decision: February 12, 2008 M/s Regent Automobiles …Petitioner Versus Indian Oil Corporation Limited and others …Respondents CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE T.P.S. MANN Present: Mr. Ashwani Kumar Chopra, Senior Advocate, with Mr. Harminder Singh, Advocate, for the petitioner. Mr. S.C. Kapoor, Senior Advocate, with Mr. Ashish Kapoor, Advocate, for the respondents. M.M. KUMAR, J. This petition filed under Article 226 of the Constitution prays for quashing letter dated 19.11.2007 (P-10), whereby the Maintenance and handling contract entered into between the parties has been terminated and operation of IBP COCO (CC-1), Sector 5, HUDA, Panchkula (for brevity 'the retail outlet'), has been terminated. Consequently, the petitioner has been directed to remove its goods etc. within three days. It has further been prayed that the respondents may be directed to allow the petitioner to continue as Maintenance and Handling Contractor and to resume functioning of the retail outlet by restoring supply of petroleum products. The facts of the case are that IBP Company Limited was carrying on its business of storage and marketing of petroleum products C.W.P. No. 17874 of 2007 (O&M) - 2- through its retail outlets throughout the country. It was later on amalgamated in the Indian Oil Corporation-respondent No. 1 (for brevity, ‘the respondent Corporation’). It is claimed that the petitioner, which is a proprietorship concern, helped the respondent Corporation in setting up of the retail outlet (P-2). On 23.11.2001, the petitioner was awarded the Maintenance and Handling Contract (for brevity, ‘M&H contract agreement’) of the retail outlet (P-1), which has been renewed from time to time. On 27.6.2007, a surprise inspection of the retail outlet was conducted jointly by the members of AAC and the respondent Corporation. Three samples of petroleum products were taken, out of which two were handed over to the petitioner as per the Marketing Discipline Guidelines (for brevity, ‘MDG’). A letter dated 27.6.2007 was issued to the petitioner pointing out discrepancies in dispensing units, which showed that there were short/excess delivery in 5 Ltr. measure. The aforesaid details have been mentioned and the sales from the dispensing units as per metre reading have been suspended which are as under:- Sr.No. D.U.No. Short/excess Metre reading 1. MS 1 L&T 4299 MPD short by 100 ml. 945267 2. MS 3L&T 4299 MPD short by 30 ml. 1753902 3. HSD 2 L&T MPD short by 20 ml 661935 4. XP 1 L&T 4301 short by 30 ml 239035 5. HSD 4 L&T 4301 short by 20 ml 247660 6. HSD 1 MIDCO Excess by 30 ml. 2533046 The petitioner was asked to show cause as to why action be not C.W.P. No. 17874 of 2007 (O&M) - 3- taken as per MDG 2005 and under the provisions of the M&H contract agreement (P-2). On 29.6.2007, the petitioner sent a reply taking the stand that except for one dispensing unit i.e. MSDU-1 all units were in order and sale from that dispensing unit was stopped on the day of inspection (P-3). On 12.7.2007, the respondent Corporation suspended the sales and supplies of the retail outlet with immediate effect as the sample of Motor Spirit (MS) taken on 27.6.2007 failed in the RON test (P-4). On 17.7.2007(P.5), the petitioner sent its reply that since the sample passed all clinical tests but failed in the RON test, therefore, a request was made to get the RON test done again in the presence of the petitioner out of the samples handed over to it by the joint inspection team. The petitioner also apprehended political sabotage, inasmuch as, the complaint by the complainant was made to the Chief Minister, Haryana, which is not the normal practice and normally complaints are made to the officials of the respondent Corporation (P-5). The RON test was conducted twice by the respondents on 9.7.2007 and 13.10.2007, wherein test results came as 78.3 and 81.5 respectively as against the specification requirement of minimum 88.0 [P-6 (Colly)]. It is apposite to notice that on 13.10.2007, the RON test was conducted in the presence of the petitioner. However, it has been claimed that instead of testing the samples, which were handed over to the petitioner, the sample which was with the Field Officer was re-tested. It has further been alleged that when the petitioner requested for testing the samples which were with him, it was told that there were no orders for testing his samples. On 16.10.2007, the petitioner made a request for supply of copies of both the test reports. Thereafter again a reminder was sent on C.W.P. No. 17874 of 2007 (O&M) - 4- 18.10.2007 (P-8). On 22.10.2007, the petitioner sent a representation to the Additional Secretary, Ministry of Petroleum and Natural Gas, New Delhi, pointing out all the facts and various discrepancies committed in conducting inspection and testing in violation of the MDG (P-9). On 17.11.2007, the petitioner filed a suit in the Court of Civil Judge (Senior Division), Panchkula, for declaration to the effect that letters dated 27.6.2007(P-2) and 12.7.2007(P-4) suspending the supplies as also the reports dated 9.7.2007 and 13.10.2007 were illegal, null and void and for seeking permanent injunction restraining the defendants from passing the termination order. Notice in the suit was issued and the defendant No. 2 therein sought reference of the matter to the Arbitrator in terms of M&H contract agreement. On 19.11.2007, order was passed terminating the M&H contract agreement, which is subject matter of challenge in the instant petition (P-10). In view of the termination order having been passed, the petitioner has also sought withdrawal the civil suit. In the written statement filed on behalf of respondent Nos. 1 to 4 a preliminary objection has been raised that writ petition is not maintainable in view of clause 51 of the M&H contract agreement, which provides for referring the matter to the arbitration in the event any dispute or difference of any nature concerning any right, liability, act or omission on account of any of the party etc. arises. It has further been asserted that the petitioner has no locus standi or legal right to file the instant petition. Referring to clause 48 of the M&H contract agreement it has been mentioned that the agreement between the parties was for a period of 2 years, which came to an end on 23.11.2007. It has been submitted that the M&H contract agreement has rightly been terminated since the petitioner C.W.P. No. 17874 of 2007 (O&M) - 5- has failed to maintain high degree of customer satisfaction with regard to quality and quantity of the products, inasmuch as, various irregularities were found by the joint inspection team during inspection conducted on 27.6.2007 and the samples have failed in RON test. In this manner, the petitioner has violated clause 1 of the M&H contract agreement. Further stand of the respondents is that the instant petition is barred by the principles of res judicata because the petitioner has already filed a suit in the Court of Civil Judge (Senior Division), Panchkula. The respondents upon receipt of notice, have filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the matter to arbitration, which was fixed on 5.12.2007, however, the petitioner withdrew the suit and filed the instant petition. Mr. Ashwani Chopra, learned Senior counsel for the petitioner has argued that the instant petition must be held to be maintainable because according to the learned counsel the principles of natural justice have been violated and the petitioner is claiming the violation of his fundamental rights. In that regard he has placed reliance on a judgment of the Hon'ble the Supreme Court in the case of Harbanslal Sahnia and another v. Indian Oil Corporation Ltd. And others (2003) 2 SCC 107. Learned counsel for the petitioner has elaborated the argument concerning violation of principles of natural justice stating that RON test should have been held by examining the sample which was with the petitioner and not the samples which were in the possession of the respondents. He has maintained that the difference pointed out between the specification and the test result is not of such a magnitude that it may warrant termination of the contract. Mr. S.C.Kapoor, learned Senior counsel has vehemently C.W.P. No. 17874 of 2007 (O&M) - 6- argued that where there is arbitration clause, the petitioner should have availed the remedy of arbitration because no civil suit would be competent. According to the learned counsel the excuse of RON test having not been done from the samples in possession of the petitioner would not warrant by- passing of arbitration proceedings which is mandatory in Section 8 of the Arbitration and Conciliation Act, 1996 (for brevity 'the Act'). Learned counsel has maintained that when the RON test was held on 13.10.2007 [P- 6 (colly.)] not only the officers of the respondent-corporation were present but even Mr. Kulvir Singh, Maintenance and Handling Contractor was present and had duly signed the test report. It was after the failure of the test as per its report on 13.10.2007. The petitioner first raised hue and cry about the Octane level of sample tested on 9.7.2007 which was 78.3 and the sample tested on 13.10.2007 it was 81.5 whereas the requirement of norm is 88.0. On that basis it was claimed that the RON test was either wrongly conducted or there was tampering by some body from the respondents. It was only after that the requests for re-testing was made on 22.10.2007 (P- 9). Therefore, it cannot be claimed that principles of natural justice have been violated and that it is a simple case of violation of various norms and the wholesale tampering with the dispensing units delivering their supply of petrol to the customers. Having heard learned counsel for the parties, we are of the considered view that once there is arbitration clause then it is mandatory duty of the court to refer the dispute arising between the contracting parties to the Arbitrator. For the aforementioned view we place reliance on a judgment of Hon'ble the Supreme Court in the case of Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleums C.W.P. No. 17874 of 2007 (O&M) - 7- (2003) 6 SCC 503. It was in some what similar circumstances that the argument against referring the dispute to the Arbitrator was rejected that dispute be not referred to the Arbitrator. The argument raised was that there can be no arbitration clause in regard to dispute concerning short- delivery of motor spirit and HSD or the tampering with the weights and measurement seals because such a dispute can only be adjudicated in a manner provided for under the Standards of Weights and Measures (Enforcement)Act, 1985 and such dispute cannot be gone into arbitration proceedings. After extracting the arbitration clause and various clauses of the dealership agreement dealing with the obligation of the dealer to comply with the provisions of various Acts, Rules and Regulations, Hon'ble the Supreme Court has reached a conclusion that the Corporation was entitled to stop or suspend the supply of its petroleum products to such a dealer without prejudice to other remedies contemplated by the dealership agreement. The right of the Corporation to take action against the erring dealer under the terms of the agreement was considered de hors 'the proceedings that may be available to be initiated against the erring dealer under the provisions of various other enactment's' to which reference have been made in the clauses of the dealership agreement. On the aforementioned issue, Hon'ble the Supreme Court concluded in para 23 as under:- “23. Therefore, in our opinion, the courts below have erred in coming to the conclusion that the appellant did not have the legal authority to investigate and proceed against the respondent for its alleged misconduct under the terms of the C.W.P. No. 17874 of 2007 (O&M) - 8- Dealership Agreement. We are also of the opinion that if the appellant is satisfied that the respondent is indulging in short supply or tampering with the seals, it will be entitled to initiate such action as is contemplated under the agreement like suspending or stopping the supply of petroleum products to such erring dealer. If in that process any dispute arises between the appellant and such dealer, the same will have to be referred to arbitration as contemplated under clause 40 of the Dealership Agreement.” When the principles laid down in Pinkcity Midway Petroleums ' case (supra)are applied to the facts of the present case, then it becomes evident that the matter is squarely covered by the aforementioned judgment. It would be pertinent to make reference to various clauses of M & H contract which are extracted below:- 1. xxx xxx xxx a) xxx xxx xxx xxx b) xxx xxx xxx c) xxx xxx xxx d)To receive the products of the company and to store, handle and sell the same as per the direction of the Company. The M&H Contractor shall ensure observance and strict adherence of the “Quality and Quantity Control Measures as set out in the Third Schedule hereunder written and as may be modified and C.W.P. No. 17874 of 2007 (O&M) - 9- be in vogue from time to time. e) xxx xxx xxx F)The M&H Contractor will ensure that the Quality of the products dispensed at the Retail Outlet conforms with all its specifications (as amended from time to time) such as density recorded in the density register as specified in (B) (xv) of Third Schedule and BIS specification no. IS :2796.2000 for Petrol and IS : 1460:2000 for Diesel at all times including when the Retail Outlet is subject to inspection by the various authorities VIZ Oil companies/ State Level Co- ordinator (SCL), State government Authorities, Anti Adulteration Cell or any other Authority duly constituted under law. The M&H Contractor also undertakes to co-operate with such authorities at the time of any inspection. The M&H Contractor shall ensure that the said premises and/or Outfit and every part thereof meet the specifications as may be prescribed by the said authorities at all times. In the event the quality of the product does not match the specifications prescribed for any reason whatsoever, the M&H Contractor shall immediately stop operation of the Dispensing Unit connected with the said product & inform the Company immediately. Stamping and/or periodic stamping required to be done due to repairs of Dispensing Units will be the responsibility of the C.W.P. No. 17874 of 2007 (O&M) - 10- Company. g) xxx xxx xxx h) xxx xxx i) xxx xxx xxx j) xxx xxx xxx k) Observe and comply with all statutory regulations. l) The M&H Contractor shall be solely responsible for any breach or deficiency in service or observance of the said standards, and performance of the terms of this Agreement. The M&H Contractor shall be solely responsible/liable for observance of all requirements, particularly the duties and responsibilities under the provisions of the Factories Act, Essential Commodities Act, Petroleum Act, Minimum Wages Act, The Explosive Act, The Contract Labour (Regulation and Abolition)Act, and all such other legislations as are applicable for the operation of the said retail outlet and shall keep the company indemnified against all liabilities that may arise due to non-observance or non- performance of the provisions or any of the provisions of the said enactments. For the purpose of the Factories Act the M&H Contractor shall be deemed to be the occupier of the retail outlet. As the Officer of the company will not be in a position to supervise day to day operation and be physically present all the time at the retail outlet, the M&H Contractor shall be solely C.W.P. No. 17874 of 2007 (O&M) - 11- responsible for any violation of the provisions of the Essential Commodities Act, 1955 for the conduct of the Company's business at the premises and also be liable for any contravention of any order issued or that may be issued under the Essential Commodities Act, 1955. m) xxx xxx xxx n) xxx xxx o) xxx xxx xxx p) xxx xxx q) xxx xxx xxx r) xxx xxx s) xxx xxx xxx t) If stamping of the Dispensing Units is required to be carried out due to defects in the seal etc. the same will be the sole responsibility of the M&H Contractor. The M&H Contractor shall ensure that the seals are not tampered with and shall keep the company indemnified against all losses and damages which the Company may suffer or incur due to any such tampering. 2. xxx xxx xxx 3. xxx xxx xxx 4. xxx xxx xxx 5. xxx xxx xxx 6. Upon receipt of the Product at the Premises the M&H Contractor shall check the product specification as per the procedure set out in the Third Schedule hereunder. C.W.P. No. 17874 of 2007 (O&M) - 12- In the event of any deviation being observed, in the quality and Quantity of the Product, the M&H Contractor shall promptly inform the Company about such deviation. The M&H Contractor shall be responsible and shall strive for a high degree of customer satisfaction and shall follow the guidelines set out in the Quality & Quantity Assurance Scheme of the company, a copy of which is annexed as Annexure 'I'. The M&H contractor shall take every possible precaution against contamination of the products by water, dirt or other things injurious to their quality and shall not in any way directly or indirectly after the specifications of the said products. If ay any time it is found that the quality of the product does not match with the product specifications, density etc. for any reasons whatsoever, the M&H Contractor will forthwith dis-countinue operating the Dispensing Units (DU's) dispensing the said product and inform the company immediately. The company shall have the right to remove the contaminated product and to deal with the same at the cost of the M&H Contractor. 7. Xxx xxx xxx 8. xxx xxx xxx 9. xxx xxx 10.xxx xxx xxx 11.xxx xxx C.W.P. No. 17874 of 2007 (O&M) - 13- 12.xxx xxx xxx 13.xxx xxx xxx 14.xxx xxx xxx 15.xxx xxx 16.The M&H Contractor shall observe and implement all the laws of the land and the rules framed thereunder for the staff/emloyees engaged by him and that the Company shall in no event be liable or responsible or made liable or responsible for any default or negligence that may arise out of non-observance or non-performance of such laws/rules on the part of the M&H Contractor and that the M&H Contractor shall indemnify and keep indemnified the Company and its officers/employees against any claim, loss, damage and/or injury caused to the Premises or to the properties or to the members of the staff of the Company through any neglect or default or otherwise of the M&H Contractor and/or his employees, servants, agents and representatives. 17.Xxx xxx xxx 18.xxx xxx xxx 19.xxx xxx xxx 20.xxx xxx xxx 21.xxx xxx 22.xxx xxxx xxx 23.xxx xxx C.W.P. No. 17874 of 2007 (O&M) - 14- 24.xxx xxx xxx 25.xxx xxx 26.xxx xxx xxx 27.xxx xxx xxx 28.xxx xxx xxx 29.xxx xxx 30.xxx xxx xxx 31.xxx xxx xxx 32.xxx xxx xxx 33.xxx xxx xxx 34.xxx xxx 35.xxx xxx xxx 36.xxx xxx 37.xxx xxx xxx 38.The M&H Contractor undertakes to observe perform and carryout faithfully and promptly all directions and/or rules given or made from time to time by the Company for properly conducting the retail outlet of the Company. The M&H Contractor shall scrupulously observe and comply with all laws, rules, regulations and requisitions of the Central/State Government 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 the products of the Company C.W.P. No. 17874 of 2007 (O&M) - 15- including the petroleum products. 39.xxx xxx xxx 40.xxx xxx 41.xxx xxx xxx 42.xxx xxx 43.xxx xxx xxx 44.xxx xxx 45.xxx xxx xxx 46.xxx xxx 47.xxx xxx xxx 48.The agreement will be for a period of 2(Two) years effective from 23rd November, 2005, subject to the renewal by ______year at the company's option at the same rates, and on the same terms and conditions as are herein contained. Without prejudice to the aforesaid, this agreement may be terminated at the option of either party by giving at least one month's notice in writing to the other party, without assigning any reason whatsoever. In case of breach of contract, the Company reserves the right to terminate this Agreement forthwith. Unless otherwise mentioned or renewed in writing this agreement stands automatically terminated at the end of the agreement period. If any information given by the M&H contractor in his application for appointment shall be found to be untrue or incorrect, in material respect, the Company reserves C.W.P. No. 17874 of 2007 (O&M) - 16- the right to terminate this Contract forthwith. 49.Xxx xxx xxx 50.xxx xxx 51.xxx xxx xxx.” A perusal of the aforementioned clauses of M & H contract would show that the petitioner-contractor is under obligation to promptly and faithfully observe all the directions, orders, rules, terms and conditions of safe practices and marketing discipline. Clause 1 (K and L) specifically requires the contractor to observe and comply with the provisions of all statutory regulations including Factories Act. Essential Commodities Act,1955/Petroleum Act,/Explosive Act,/Minimum Wages Act,/Contract Labour (Regulations and Abolition)Act and all such other legislations as are applicable for the operation of the maintenance and handing contract. It further requires the contractor to keep the Corporation indemnified against all liabilities that may arise due to non-observance or non-performance of the provisions of the Act or any part thereof. It may then be noticed that Clause 48 of the agreement categorically provides that in case of breach of contract, the company reserves the right to terminate the agreement forthwith, unless otherwise mentioned or renewed in writing. The agreement would stand terminated at the end of the agreement period. It is further appropriate to mention that the period of two years has expired on 23.11.2007. Therefore, we are of the opinion that the view expressed by Hon'ble the Supreme Court in the case of Pinkcity Midway Petroleums (supra) that arbitration clause would apply to the facts of the present case. The arbitration clause in the present C.W.P. No. 17874 of 2007 (O&M) - 17- case is incorporated in the M & H contract which reads as under: “Any dispute or difference of any nature whatsoever or regarding any right, liability, act, omission on account of any of the parties hereto arising out of or in relation to this agreement or any interpretation of any clause or provision thereof shall be referred to the sole arbitration of the Head of the Region, of the Company, or of some officer of the Company who may be nominated by the Head of the region. The M &H Contractor will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the Company. In the even the arbitrator to whom the matter is originally referred to is transferred or vacates his office or is unable to act for any reason the Head of the Region as aforesaid at the time of such transfer, vacating of office or inability to act, shall designate another person to act as an arbitrator in accordance with the terms of the agreement. Such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor.” In view of the aforementioned discussion we are of the considered view that the petitioner must be relegated to the remedy of arbitration and the judgment of Hon'ble the Supreme Court in the case of Harbanslal Sahnia and another (Supra) would not govern the issue. Accordingly, the petitioner is relegated to the remedy of arbitration. Before C.W.P. No. 17874 of 2007 (O&M) - 18-