IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE THIRTEENTH DAY OF JUNE TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE V.ESWARAIAH WRIT PETITION No.3824 of 2008 Between: M/s. E. Satyanarayana & Co. Indian Oil Dealer, Nalgonda Road, Miryalaguda-508 207 Nalgonda District, Rep. by its Managing Partner E. Dhanunjaya ..... PETITIONER AND The Indian Oild Corporation Limited, Rep. by Senior Divisional Retail Sales Manager,Divisional Office: G.V.R. Towers, 3rd Floor, Bharathi Nagar, Ring Road, Vijayawada-520 008 .....RESPONDENT 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 to issue a writ in the nature of a writ of Mandamus or any other appropriate writ direction or order declaring the Order Ref. VJR:NG:3 dt. 14-2-2008 of the Senior Divisional Retail Sales Manager, Indian Oil Corporation Ltd., the respondent herein as illegal, and void; and pass Counsel for the Petitioner:MR.P.KAMLAKAR Counsel for the Respondent No.: MR.P.V.SANJAY KUMAR The Court made the following: Form-NIC-OGS/WP{VSMI} THE HON'BLE MR JUSTICE V.ESWARAIAH WRIT PETITION No.3824 of 2008 O R D E R: The petitioner questions the impugned order of the respondent Corporation dated 14.02.2008, which terminates the Petrol/HSD Pump dealership agreement dated 09.10.1990 in respect of the retail outlet of the petitioner at Nalgonda Road, Miryalaguda. 2. The respondent Indian Oil Corporation entered into dealership agreement dated 23.09.1979 with the petitioner company, represented by it’s proprietor Sri E.Satyanarayana, thereafter, the dealership was converted into partnership firm and fresh partnership agreement was executed with M/s.Edukulla Satyanarayana and Company on 09.10.1990. The partners of the dealership firm were (1) Sri E.Purnachander, (2) Sri E.Venkatesham and (3) Sri E.Dhanunjaya, who are the sons of late E.Satyanarayana, the original dealer. 3. It is stated that all the three partners submitted a representation dated 27.06.1996 to the Senior Divisional Manager, Indian Oil Corporation, Vijayawada informing that one of the partner namely Sri E.Venkatesham wanted to retire from the Firm as he has already established a PVC manufacturing unit at Miryalaguda, and along with his consent letter duly notarized on 27.06.1996, the draft deed of re-constituted firm with two partners was sent for approval. It is stated that as there was no communication from the respondent, the petitioner firm continued with two partners and the Corporation also continued to supply the petroleum products to the petitioner firm. 4. It is further stated that first partner E.Purnachander died on 13.06.1998. After his death, the petitioner E.Dhanunjaya, the other partner and the wife of deceased E.Purnachander, Smt.E.Radha submitted a representation to the respondent for approval of the firm with re-constituted partnership, consisting of Sri E.Dhanunjaya and Smt.E.Radha. But there was no reply to the said representation dated 18.09.1998. However, the respondent continued to supply the petroleum products in the name of the petitioner firm. It is stated that as the sister-in-law of the petitioner i.e. E.Radha has no business experience, the petitioner E.Dhanunjaya alone was managing the retail outlet to the knowledge of all officials of the respondent Corporation. 5. While so, the officials of the respondent Corporation inspected the petitioner outlet on 09.05.2007 and prepared a report, observing that free air facility not available, the air compressor gauge not functioning, toilet not maintained properly and housekeeping not satisfactory. It was also observed that Sri J.L.K.Gupta, Manager of the petitioner firm was present and he produced a Photostat copy of the lease agreement dated 08.12.2006 written in Telugu on a non-judicial stamp paper for running of the retail outlet and signed by Smt.E.Radha, describing herself as Proprietor of the petitioner company, and he also produced copy of Power of Attorney said to have been executed by Smt.E.Radha in favour of one Sri Maram Subbarao for running the retail outlet and both the documents were taken over. 6. It appears that on knowing about the aforesaid inspection, the said E.Radha addressed a letter dated 20.05.2005 to the Sales Officer of Indian Oil Corporation, informing that she has taken a loan of Rs.10 lakhs from Sri Maram Subbarao and the said Subbarao has no right in the Bunk and the retail outlet business. Thereafter, once again the retail outlet was inspected by the officials of the respondent Corporation on 12.06.2007 and satisfied with the availability of free air, facility of drinking water, and proper maintenance of toilet and house keeping. It is stated that Sri J.L.K.Gupta, the Manager of the outlet was present and later on, the partner of the petitioner Company Sri E.Dhanunjaya came to the retail outlet on the date of inspection i.e. on 12.06.2007 at 12.30 p.m. Thereafter, a show cause notice dated 18.07.2007 was issued to the petitioner to show cause as to why action should not been taken for termination of the dealership agreement for the irregularities noticed during the inspection on 23.05.2007, which are extracted hereunder for the sake of convenience; · You are not providing Free Air in your RO and the Air facility provided at your RO was not working; · The premises were maintained poorly condition and the toilet in your RO was unusable; · You were not taking part in the management and affairs of the dealership; · A POA was executed in favour of Shri Marram Subba Rao on 08/12/2006 thereby he was managing the affairs of the dealership; · Shri E.Purnachander one of the partner died on 13/6/1990 and no reorganization is done so far; · Smt.Edukulla Radha, W/o.late Edukulla Purnachander executed a lease agreement with Sri Maram Subba Rao on 08/12/2006 illegally; 7. It is stated that all the above acts of the petitioners are in gross violation of the terms and conditions of the dealership agreement/Marketing Discipline Guidelines (MDG 205) and are against the interest and goodwill of the Corporation. 8. It is the case of the petitioner that in fact no inspection was conducted on 23.05.2007, but the inspected was made only on 09.05.2007 and thereafter on 12.06.2007. It is stated that the petitioner has sent a reply dated 27.07.2007 denying all the allegations made in the notice and it was brought to the notice of the respondent that after the death of his brother E.Purnachander, the wife of E.Purnachander, Smt.E.Radha and the petitioner E.Dhanunjaya applied for re- organization, but it was not finalized by the Corporation. 9. It is stated that the instrument to provide the air was not functioning properly on 09.05.2007, but it was immediately rectified and therefore, it was found functioning properly when it was inspected on 12.06.2007. It is stated that toilets are also maintained properly. With regard to the allegation that the petitioners are not taking part in the management basing on the Power of Attorney said to have executed by E.Radha on 08.12.2006, it is stated that the petitioner has no knowledge about it, but stated that the alleged Power of Attorney Holder was not at all managing the retail outlet. It is stated that Smt.E.Radha also sent a reply denying all the allegations made in the show cause notice. 10. It is stated that even before the dealership was terminated, the respondent Corporation filed a caveat petition dated 01.02.2008 on the file of the Principal District Judge, Nalgonda, the copy of which was sent to the petitioner, stating that they have decided to terminate the contract of the petitioner firm. The petitioner as usual sent a letter with demand draft for Rs.4,20,000/- for supply of HSD, but it was not accepted by the respondent Corporation. It is stated that on 18.02.2008 the Corporation served the order dated 14.02.2008 on the petitioner, terminating the dealership agreement of the petitioner firm. It is stated that the copy of the termination was also sent to E.Venkatesham, who has already taken retirement, which fact was also intimated to the respondent on 27.06.1996. 11. It is the case of the petitioner that the termination of the dealership agreement by order dated 14.02.2008 is illegal, without any reasons and against the principles of natural justice. The reply given to all the six allegations/irregularities as mentioned in the show cause notice was not at all considered. It is stated that the allegations with regard to non-providing free air, air facility and non-functioning of toilet as noted in the show cause notice are not correct and the said allegations are denied. However, under Marketing Discipline Guidelines, 2005 a penalty of Rs.10,000/- can be imposed for the said lapses or irregularities. 12. With regard to the allegation that the petitioner was not taking part in the management and the affairs of the business and one J.L.K.Gupta, Manager of the petitioner was present as per the Inspection reports dated 09.05.2007 and 12.06.2007, it is stated that in fact the petitioner was also present on 12.06.2007. With regard to execution of Power of Attorney in favour of Sri Maram Subbarao on 08.12.2006 by E.Radha and the said Maram Subarao was managing the affairs of the petitioner dealership, it is stated that the said allegation is without any basis, and no Power of Attorney was executed by the petitioner firm representing by its Managing Partner E.Dhanunjaya, the petitioner herein. The said Maram Subbarao has never been in the management of the retail outlet. The so called Power of Attorney said to have been executed by E.Radha cannot be treated as that of a firm. However, the said Power of Attorney was not at all acted upon as the said Maram Subarao was never been in the management of the retail outlet. 13. With regard to allegation that after the death of E.Purnachander on 13.06.1990 no re-organization was constituted, it is stated that E.Purnachander died on 13.06.1998 but not on 13.06.1990, and after his death, the petitioner E.Dhanunjaya and the wife of deceased E.Purnachander i.e. Smt.E.Radha submitted a representation to the respondent Corporation on 27.06.1996, but the respondent Corporation did not communicate any reply, and in fact, the petitioner firm consisting of two partners alone, the petitioner and Smt.E.Radha, and the same was forwarded to respondent for its approval. As there was no communication with regard to approval or non-approval, the petitioner was under bona fide impression that the re-constitution of firm by its two partners E.Dhanunjaya and E.Radha has been accepted by the respondent Corporation. Therefore, the respondent Corporation is not entitled to raise the said issue after 10 years. 14. With regard to lease agreement said to have been executed by Smt.E.Radha in favour of Maram Subbarao, it is stated that no such lease agreement was executed by Smt.E.Radha in favour of Maram Subbarao and the said Subbarao was never been in the management and he was not the lessee at all. 15. It is stated that the respondent Corporation with pre- determination of mind issued the show cause notice as well as the impugned order. it is stated that the impugned order is illegal and unsustainable and therefore, liable to be set aside. 16. The respondent filed counter stating that Clause-67(a) of the Dealership Agreement provides an alternative remedy in the form of Arbitration, and there is no enforceable contract, as such the writ petition is not maintainable. It is accepted that after the death of the original dealer E.Satyanarayana, his sons E.Purnachander, E.Venkatesham and E.Dhanunjaya constituted a partnership firm and entered into the dealership agreement on 09.10.1990. The respondent without denying any of the averments made in the writ affidavit with regard to the representation dated 27.06.1996, informing the respondent that one of the partner Sri E.Venkatesham retired from the partnership firm, and about another representation dated 18.09.1998 informing about the death of another partner E.Purnachander and for approval of the reconstituted firm, it is stated that without obtaining any prior consent of the Corporation, the petitioner firm effected several changes in the constitution of the firm. The mere intimation to the Corporation about the change of the constitution without obtaining written permission will not give any right to the petitioner to assume and presume that the Corporation has accepted the change in the partnership firm. Therefore, the change in the constitution of the Firm is in violation of the mandatory Clause 47(iii) of the Dealership Agreement. 17. It is stated that when the dealership was inspected by the respondent officials, the Manager produced the Power of Attorney said to have executed by Smt.E.Radha, W/o.Punachander, appointing one Sri Maram Subbarao as Attorney, authorizing him to do various acts in the operation of the business of the dealership. The said Radha also executed lease deed dated 08.12.2006, which was produced by the Manager and therefore there is violation of the dealership agreement, warranting issuance of show cause notice dated 18.07.2007. 18. It is stated that after the death of one of the partner E.Punachander, inclusion of another person as partner without obtaining prior written consent of the Corporation is illegal and therefore, Smt.E.Radha is not entitled to recognize as a partner of the dealership firm. It is stated that the issuance of show cause notice dated 18.07.2007 and termination of the dealership agreement dated 14.02.2008 and the impugned notice dated 18.02.2008 taking over the possession of the retail outlet is legal and valid. It is stated that thereafter the selectee namely Sri M.V.Pavan Kumar, who had been selected for award of a dealership in the year 2005, was appointed as dealer to the retail outlet of the petitioner and Form-B licence was also issued in his favour by the District Collector, Nalgonda. Therefore, it is stated that the termination of dealership is legal and valid. 19. Heard the arguments of either side and considered the material available on record. 20. The undisputed facts are that the respondent originally entered into dealership agreement with one Sri E.Satyanarayana alone on 23.05.1979. After the death of said Satyanarayana, the respondent entered into an agreement on 09.10.1990 with the sons of original dealer, late Satyanarayana, namely E.Purnachander, E.Venkatesham and E.Dhanunjaya for running the retail outlet at Miryalaguda, Nalgonda District. It is stated that the agreement shall remain in force for a period of ten years from 18.06.1990 and continue thereafter for successive periods of one year each until determined by either party by giving three months notice in writing to the other of its intention to terminate the agreement. Clause-4 of the agreement provides for termination on any breach of any of the terms thereof. Clauses-4, 20, 35, 44, 46, 47 and 58 which are relevant to resolve the controversy are as follows; 4. The Licence and permission granted as aforesaid for the use of the outfit shall terminate immediately on the termination of this agreement on any breach of any of the terms thereof; 20. The Dealer shall keep the said premises and its surroundings in a clean and satisfactory condition; 35. The Dealer shall not sell, assign, sub-let, mortgage, charge or part with or otherwise transfer the premises or any part thereof his interest in the dealership or any right or interest or benefit conferred by this Agreement or grant any licence in connection with the said premises and/or outfit or any part thereof to any person firm or company nor allow any other person, firm or company to use the premises or the outfit or any part thereof except to the extent necessary under the terms of Agreement and specifically permitted in writing by the Corporation; 44. The Dealer undertakes faithfully and promptly to carry out, observe and perform all directions of rules given or made from time to time by the Corporation for the proper carrying on of the Dealership of the Corporation. The Dealer shall scrupulously observe and comply with all laws, rules, regulations and requisitions of the Central/State Governments 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 such petroleum products; 46. It shall be a paramount condition of the Agreement that the Dealer himself (if he be an individual or both partners of the Dealer firm (if the Dealer is a partnership firm consisting of two partners only) or the majority of the partners of the Dealer Firm (if the Dealer is a firm consisting of more than two partners) or the majority of the members of the Dealer Co-operative Society (if the Dealer is a Co-operative Society) as the case may be shall take active part in the management and running of the retail outlet and shall personally supervise the same and shall not under any circumstances do so through any other person or body; 47. Except with the previous written consent of the Corporation; (i) The Dealer shall not enter into any arrangement contract or understanding whereby the operations of the Dealer 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 Dealer himself (if he be an individual) or the partners/member or any of them of the Dealer (if the Dealer is a firm/co-operative society) shall not take up any other employment or engage in any other business apart from the running of the retail outlet which is the subject matter of this Agreement; (iii) The Dealer (if it be a firm or a co-operative society) shall not effect any change in its constitution whether in the identity of its partners members or in the share/share- holding of any of them or in the terms of the Deed of Partnership or of the Bye-laws as the case may be; 58. Not withstanding anything to the contrary herein contained, the Corporation shall also be at liberty to terminate this Agreement forthwith upon or at any time after the happening of any of the following events, namely; a) If the Dealer shall commit a breach of any covenants and stipulations contained in the Agreement, and fail to remedy such breach within four days of the receipt of a written notice from the Corporation in that regard; b) Upon (i) the death or adjudication as insolvent of the dealer, if he be an individual; (ii) the dissolution of the partnership of the Dealer’s firm or the death or adjudication as insolvent of any partner of the firm, if the Dealer be a firm; (iii)the liquidation, whether voluntary or otherwise or the passing of an effective resolution for winding up, if the Dealer be a Company or Co-operative Society; c) If any attachment is levied and continued to be levied for a period of seven days upon the effects of the Dealer or any individual partner for the time being of the Dealer’s firm or any member of the Dealer/Co-operative Society; d) If the Dealer or any partner in the Dealer’s firm or any member of the Co-operative Society appointed as Dealer hereunder shall be convicted of a criminal offence; e) If a Receiver shall be appointed of any property or assets of the Dealer or of any partner in the Dealer’s firm or of any members of the Dealer Co-operative Society; f) If the licence issued to the Dealer by the relevant authorities for the storage of petroleum products supplied by the Corporation is cancelled or revoked; g) If the Dealer shall for any reason make default in payment to the Corporation in full or his outstandings as appearing in the Corporation’s books of account beyond 4 days of demand by the Corporation; h) If the Dealer does not adhere to the instructions issued from time to time by the Corporation in connection with sale practices to be followed by him in the supply storage of the Corporation’s products or otherwise; i) If the Dealer shall deliberately contaminate or tamper with the quality of any of the Corporation’s products; j) If the Dealer shall sell the Corporation’s products at prices higher than those fixed by the Corporation; k) If any information by the Dealer in his application for appointment as a Dealer shall be found to be untrue or incorrect in any material particular; l) If the lease/tenancy of the Dealer (if the Dealer holds the site as lessee or tenant) shall be terminated or purported to be terminated or comes to an end for any reason whatsoever; m) If the Dealer shall either by himself or by his servants or Agents commit or suffer to be committed any act which in the opinion of the General Manager of the Corporation for the time being in Madras whose decision shall be final is prejudicial to the interest or good name of the Corporation or its products; the General Manager shall not be bound to give reasons for such decision; 21. It is also not in dispute that the petitioner sent intimation about the retirement of one of the partner E.Venkatesham and about the re-constitution of the partnership and sending a draft partnership deed for approval of the respondent. It is also not in dispute that after the death of another partner Sri E.Purnachander, the representation was sent by the remaining partners E.Dhanunjaya and the wife of late Purnachander to recognize the re-constituted firm with E.Dhanunjaya and E.Radha, wife of E.Purnachander, who died on 13.06.1998. 22. Admittedly, the retail outlet dealership of the petitioner firm was inspected as usual in the routine course on 09.05.2007 by the officials of the respondent Corporation and observed that free air facility not available, air compressor gauge was not functioning and toilet was not being maintained properly. It was further observed that the Manager of the petitioner J.L.K.Gupta was present in the outlet and on request to produce the dealership agreement, he produced the lease agreement and also a copy of the Power of Attorney executed by Smt.E.Radha in favour of Maram Subbarao for running the retail outlet and the said both documents were taken away. On coming to know about the said inspection, Smt.Radha addressed a letter to the Sales Officer of the respondent on 20.05.2007, stating that the said Subbarao has no right or any authority in the retail outlet dealership, but she has taken a loan from him so as to enable her to run the petrol Bunk. She has no benami partner. Thereafter the dealership of the retail outlet was inspected on 12.06.2007 and on which date, it was found that there is availability of clean drinking water, proper maintenance of toilet, free air facility and house keeping is satisfactory, and the behaviour of attendants is courteous, and some samples were collected, and during course of the inspection, the partner of the petitioner E.Dhanunjaya was also came to the retail outlet and he was present. After the second inspection only, the show cause notice dated 18.07.2007 referring the clauses-4, 20, 35, 44, 46, 47(i), 58 (a), (b)(i)&(ii), (h) and (k) was issued calling upon the petitioner to show cause as to why the Petrol/HSD Pump Dealer Agreement dated 09.10.1990 to run a retail outlet at Miryalaguda, Nalgonda District shall not be terminated for the irregularities said to have been committed during the course of inspection on 23.05.2007. Obviously there was no inspection on 23.05.2007, but the inspection was conducted only on 09.05.2007 and thereafter on 12.06.2007. The portion of the said show cause notice is extracted hereunder for the sake of convenience; “During the inspection dt.23.05.2007 (09.05.2007) and (12.06.2007) that you have committed the following: · You are not providing Free Air in your RO and the Air facility provided at your RO was not working; · The premises were maintained poorly condition and the toilet in your RO was unusable; · You were not taking part in the management and affairs of the dealership; · A POA was executed in favour of Shri Marram Subba Rao on 08/12/2006 thereby he was managing the affairs of the dealership; · Shri E.Purnachander one of the partner died on 13/6/1990 and no reorganization is done so far; · Smt.Edukulla Radha, W/o.late Edukulla Purnachander executed a lease agreement with Sri Maram Subba Rao on 08/12/2006 illegally; All the above acts of yours constitute