IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 3659 of 2001 with SPECIAL CIVIL APPLICATION NO. 3797/2001, 3684/2001, 3798/01 For Approval and Signature: Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------- MANDAVRAIJI FILLING STATION Versus INDIAN OIL CORPORATION LTD. -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 3659 of 2001 MR. N.D. NANAVATI, LD. SR. COUNSEL WITH MR TUSHAR MEHTA for Petitioner No. 1 MR. K.S. NANAVATI, LD. SR. COUNSEL WITH MR. CHUDGAR for Respondents 2. Special Civil Application No. 3797 of 2001 MR. N.D. NANAVATI, LD. SR. COUNSEL WITH MR. KETAN D. SHAH MR. K.S. NANAVATI, LD. SR. COUNSEL WITH MR. CHUDGAR for respondents 3. Special Civil Application No. 3684 of 2001 MR. P.G. DESAI with MR. HRIDAY BUCH for the petitioner MR. K.S. NANAVATI, LD. SR. COUNSEL WITH MR. CHUDGAR for the respondents 4. Special Civil Application No. 3798 of 2001 MR. N.D. NANAVATI, LD. SR. COUNSEL WITH MR. DEVANG VYAS for the petitioner MR. K.S. NANAVATI, LD. SR. COUNSEL WITH MR. CHUDGAR for the respondents. -------------------------------------------------------------- CORAM : MR.JUSTICE K.M.MEHTA Date of decision: 9/11/2001 C.A.V. JUDGEMENT M/s. Mandavraiji Filling Station-petitioner has filed this petition under Articles 226/227 of the Constitution of India challenging the notice dated August 4, 2000 issued by the Indian Oil Corporation Limited respondent No. 1 (hereinafter referred to as the `IOC') herein and also challenged that though actual order of termination has not been passed by the respondent No. 1, the petitioner reliably learnt that an order terminating the dealership agreement of the petitioner would be passed and challenging the said action of the respondent the petitioner has filed this petition. 2. The facts giving rise to this petition are as under: 2.1 The petitioner is a dealer of the respondent Indian Oil Corporation Limited. The petitioner has been granted dealership of retail out-let for sale of motor spirit (petrol) and high speed diesel at village Sara, Taluka Muli, District Surendranagar and he is carrying on business of dealership of retail out-let of respondent No. 1 which is a `B' site retail outlet. 2.2 It has been stated that the petitioner had applied for and is granted licence for sale of petroleum products under the provisions of the Gujarat Essential Articles (Licensing, Control & Stock Declaration) Order, 1981 (hereinafter referred to as `Licence Order). The Civil Supply authorities had visited one retail outlet known as "Shree Jai Somanth Trading Company" situated at Wankaner Boundary, Taluka Wankaner, Dist. Rajkot. The Civil Supply authorities took statements of the employees of the said retail outlet. The Civil Supply authorities checked the retail outlet on 28.4.2000. When they visited the retail outlet of the petitioner, they carried out a test known as `Density Test' which is the test to arrive at substantive satisfaction as to whether there is any adulteration in the petroleum products. However, it appears that the density test carried out by the Civil Supplies authorities showed that the petroleum products, namely, motor spirit and high speed diesel, conformed to the standards specified under the law. However, the Civil Supplies authorities on specific information that solvent was being mixed to motor spirit (petrol) and high speed diesel thus adulterated, carried out raid on 28.4.2000 and passed an order of seizure and sealed the retail outlet. 2.3 Being aggrieved by the said action, the petitioner filed Special Civil Application No. 4406 of 2000 before this court. 2.4 During the pendency of the aforesaid petition, the samples collected were sent for laboratory inspection. The respondent Civil Supplies Authorities pointed out before this court that they have received test results of high speed diesel and the said product is found to be matching with requirements specified under law. In view of the same this court was pleased to pass order on 24.5.2000 directing the authorities who were respondents in the said writ petition to lift the seizure order qua high speed diesel latest by 26.5.2000. So far as the samples of motor spirit are concerned, this court permitted the petitioner to get the same tested through an approved laboratory. 2.5 In view of the same, the District Collector passed an order lifting seizure qua diesel on 25.5.2000. On 29.5.2000 the proprietor of the petitioner-firm came to be detained under the provisions of the prevention of Black Marketing and Maintenance of Supply of Essential Commodities Act. 2.6 The petitioner filed an application on 16.6.2000 before the District Supply Officer, Surendranagar, requesting the said authority that two samples given to the petitioner under clause (V) of the Central Government Control Order of 1998 may be sent by the said authority to any of the approved laboratories. IOC was not a party to the proceedings. 2.6 On 20.6.2000 the District Supply Officer, Surendranagar, informed the petitioner that it is for the petitioner to get the same tested as per the order dated 29.5.2000 and therefore the said authority will not send the samples for testing. The authorities also directed the petitioner to get the samples tested by themselves. Thereafter the petitioner purports to have sent the samples for testing/analysis to IOC - Gujarat Refinery, Vadodara. 2.7 IOC issued show cause notice on 4.8.2000 to the petitioner seeking explanation as to why action should not be taken including termination of the dealership. Again on 21.8.2000 IOC issued another show cause notice as to why the action in accordance with the dealership agreement should not be taken including termination of dealership on the ground that the petitioner has committed breach of the provisions of Motor Spirit and High Speed Diesel (Prevention of Malpractice in Supply and Distribution) Control Order, 1998 and the proprietor of the petitioner firm Shri Prafulbhai M. Koticha is detained under PBM Act. 2.8 It is the contention of the petitioner that the samples which were given to the petitioner were sent by the petitioner to the laboratory approved under the Central Government Control Order of 1988. The petitioner received a report dated 6.11.2000. However it is the contention of the respondent that analysis report from IOC, Gujarat Refinery, Vadodara dated 6.11.2000 is forged and fabricated one and for that IOC has filed affidavit in reply. It has been stated by Shri G. Sarkar that his signature on the said report is forged and it is not his signature. 2.9 On 23.11.2000 the petitioner wrote a letter to the District Collector, Surendranagar, requesting him to require the respondents to start supply of high speed diesel. On 25.11.2000 the petitioner replied to the show cause notice stating that the samples analysed by laboratory of IOC (Gujarat Refinery) have passed as per the report and that the dealership should not be terminated when samples have failed for the first time. 2.10 The District Supply Officer, Surendranagar, passed an order on 24.1.2001 suspending licence of the petitioner for a period of 90 days. 2.11 Being aggrieved and dissatisfied with the aforesaid order the petitioner filed appeal before the District Collector, Surendranagar and the District Collector has granted stay against the order of suspension qua HSD only. The period of suspension was over on 23.4.2001. 2.12 The District Supply Officer addressed a letter to the IOC to restart supply of petrol and diesel to the petitioner. The Mamlatdar, District Chotila, by his letter dated 11.5.2001 requested the IOC to restart supply to the petitioner. 2.13 In view of the same, the present petition has been filed for a direction to the IOC to supply petroleum products to the petitioner and prohibit the IOC from terminating the dealership agreement. The same was filed on 17.5.2001 and on 18.5.2001 rule was issued by the vacation court. Notice as to interim relief made returnable on 13.6.2001 and in the meantime the IOC is directed not to terminate the dealership. 2.14 An application under Article 226(3) of the Constitution of India was filed by the IOC for vacating ad-interim relief. 3. Shri N.D. Nanavati, learned senior counsel with Mr. Tushar Mehta, learned advocate appeared on behalf of the petitioner. It may be noted that along with this Special Civil Application other Special Civil Applications, namely, Spl. C.A. No. 3684 of 2001 filed on behalf of Mahavir Petroleum raising identical question where Mr. P.G. Desai instructed by Mr. Hriday Buch, Special Civil Application No. 3797 of 2001 where Mr. N.D. Nanavati, ld. senior counsel instructed by Mr. Ketan D. Shah and Spl. C.A. No. 3798 of 2001 where also Mr. N.D. Nanavati, learned senior counsel instructed by Mr. Devang Vyas, were filed. As these writ petitions raise the main question regarding dealership contract and threatened action of the IOC to terminate the dealership, I have heard these matters together. 4. Shri N.D. Nanavati, learned senior counsel for the petitioner, has invited my attention to the record of the case. He submitted that IOC is a `State' within the meaning of Article 12 of the Constitution and in any way it is an agency and instrumentality of the State and therefore the respondent IOC cannot act arbitrarily and unreasonably. If the action of the respondent IOC is arbitrary per se or unreasonable, the writ petition under Article 226 of the Constitution is maintainable. He has also contended that this is a case of agency/dealership of supply of petroleum products of IOC by the petitioner and when the contract is entered into by the petitioner with the respondent IOC, the petitioner has spent money to erect petrol pump, erect tanks for storage of petrol and employed staff and has taken due care to see that no untoward incident happened particularly question of fire and other incidents etc. He therefore submitted that the petitioner is not merely an agency of the respondent IOC but an agent who has great interest in the subject matter of property i.e. dealership and petrol pump. He has therefore relied on Section 202 of the Contract Act which provides as follows:- "Sec. 202 - Termination of agency, where agent has an interest in subject matter - Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest." 5.1 In this case the petitioner has interest in the subject matter of agency and therefore in any view of the matter the respondent authority may not terminate the contract. 5.2 He has also relied on a copy of the petition filed Central Gujarat Petrol & Diesel Dealers Association Vs. State of Gujarat being Special Civil Application No. 8803 of 1999 and the order of this court (Coram: M.R. Calla, J) dated 11.4.2000. The relevant portion is given as under: "In the facts of the present case, no such blanket direction as have been sought in the petition can be issued by this court. With regard to the part of grievance that the Octane level is not known to the dealers at the time when they receive the supply from the Oil Companies, it needs to be clarified that henceforth the respondents would inform the concerned Oil Companies to indicate the Octane level in the petrol/diesel at the time when the supply is made so that in case the Octane level does not conform to the requisite standards, the liability may be fixed for appropriate action to be taken against the concerned party. Accordingly, the respondents would henceforth instruct the concerned Oil Companies to indicate the Octane level at the time of supply of petrol/diesel to the concerned dealers. In case any of the Circulars or guidelines as issued by the Civil Supplies and Consumer Affairs Department are found to be violated by any of the dealers, they will be vulnerable to the such action as the respondents may deem proper in accordance with law. With the observation and direction as aforesaid, this Special Civil Application is hereby dismissed." 5.3 He has also relied on the Marketing Discipline Guidelines, namely, preamble clause (2) which provides for adulteration, as given in the MDG, implies wilful debasing of products/materials by adding other/or inferior substances with mala fide intention affecting the end use. In this case, provision of termination in the second instance itself is provided. 5.4 Chapter I provides duties of Oil Companies handling of MS/HSD/SKO AT COMPANY'S STORAGE POINTS. The relevant clauses are reproduced hereinbelow: "Clause 1(a) - All storage points shall carry out quality control checks as laid down in the Industry Quality Control Manual at every stage of product handling to ensure that the product released meets the standard specifications. (b) Water dips shall be taken to check presence of water in storage tanks and remedial measures be taken wherever necessary. (c) Quality Control checks shall be recorded in the standard quality control formats in line with the Quality Control Manual." 5.5 He further submitted that though this writ petition is in the realm of contract the respondent is a "State" within the meaning of Article 12 of the Constitution of India and respondent is supplying petrol and diesel which is monopolistic item and if the action of the respondent is arbitrary and unreasonable, this court has power to interfere with under Article 226 of the Constitution. 5.6.1 Learned senior counsel Mr. P.G. Desai relied on the following authorities in support of their contention that even if in contractual matters, when there is violation of Article 14 of the Constitution, this court has jurisdiction under Article 226 of the Constitution. 5.6.1. R.D. SHETTY VS. INTERNATIONAL AIRPORT AUTHORITY reported in AIR 1979 SCA 1628. On page 1634 at para 7 the Hon'ble Supreme Court has observed thus:- "We must, in the circumstances, hold that, on a proper construction what paragraph (1) of the notice required was that only a person running a registered IInd Class hotel or restaurant and having at least 5 years' experience as such should be eligible to submit a tender. This was a condition of eligibility and it is difficult to see how this condition could be said to be satisfied by any person who did not have five years' experience of running a IInd Class hotel or restaurant." Again on page 1642 at para the Hon'ble Supreme Court was pleased to observed as follows:- "Now, obviously where a corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Government. The rule inhibiting arbitrary action by Government which we have discussed above must apply equally where such corporation is dealing with the public, whether by way of giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship with any person it likes at its sweet will, but its action must be in conformity with the same principle which meets the test of reason and relevance." 5.6.2. MAHABIR AUTO STORES AND OTHERS VS. INDIAN OIL CORPORATION AND OTHERS reported in AIR 1990 SC 1031 in which at para 12 on pages 1036-1037 the Ho'ble Supreme Court has observed as under: "It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in M/s. Radha Krishna Agarwal Vs. State of Bihar, (1977) 3 SCC 457: (AIR 1977 SC 1496). It appears to us, at the outset, that in the facts and circumstances of the case, the respondent Company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article can be checked........... 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 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 dealing as in the present case." 5.6.3. KUMARI SHRILEKHA VIDYARTHI VS. STATE OF U.P. reported in AIR 1991 SC 537. In this case at paras 20 and 21 on page 549 the Hon'ble Supreme Court has observed as under: "Para 20 - We have no hesitation in saying that the personality of the State, requiring regulation of its conduct in all spheres by requirements of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot co-exist. Para 21 - We have no doubt that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. In our opinion, it would be alien to the Constitutional Scheme to accept the argument of exclusion of Art. 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion." 5.7 In the light of the above decisions, this petition is maintainable and this court must entertain this petition and when the dealership is still not terminated this court may also grant injunction restraining the respondents from terminating the contract/dealership. 5.8 He further submitted that the petitioner has a prima facie case in its favour and balance of convenience also lies in favour of the petitioner. He also submitted if the supply of petrol and diesel is discontinued, where admittedly there is no adulteration, not only the petitioner is suffered but the rural public is deprived of supply of diesel and petrol and therefore balance of convenience lies in favour of the petitioner. He further submitted that if the contract/dealership is terminated the petitioner will suffer irreparable injury and hardship which cannot be compensated in terms of money because the livelihood of the petitioner will be destroyed. He further submitted that this court has discretion to grant injunction in this behalf. He submitted that though the power to grant injunction is a discretion but the discretion has to be exercised in accordance with the judicial principles. He submitted for granting injunction, three principles are required. He submitted that in view of all the three principles of granting injunction, viz. the petitioner has made out a prima facie case and the balance of convenience lies in favour of the petitioner. He further submitted that if injunction is not granted, the petitioner will suffer irreparable injuries in this behalf. Therefore, injunction as pressed for which was granted earlier may be continued till further hearing of the petition. He also submitted that the analysis report is also in favour of the petitioner. 6. Mr. K.S. Nanavati, learned senior counsel instructed by Chudgar, ld. counsel for the respondent submitted that IOC has filed a detailed affidavit in this behalf. On the basis of the said affidavit in reply he has contended that (1) the analysis report given by the Gujarat Refinery is false and fabricated one. The signatory of the said analysis report has written a letter stating clearly that he has not signed the same report and his signature is a forged one. He has also filed an affidavit in this regard before this court. 6.1 To counter this, the petitioner has produced a letter dated 10.10.2000 purporting to be a covering letter sending the sample for analysis to the Gujarat Refinery. The said letter bears an endorsement of receiving the sample by the P.A. to CTSM, Mr. U.K. Roy. The said PA to CISM has written a letter stating that she has never received the sample nor the said letter dated 10.10.2000 and that the signatures are forged. He has further submitted that the petitioner has tried to produce forged documents before this court and has tried to mislead the court and therefore the petitioner is not entitled to any relief. He further submitted that termination order is yet not passed and therefore the petition is premature. No reasons at present are available as to on what ground the apprehended termination order would be passed and the petitioner is premature. He further submits that the rights and obligation between the parties are governed by the contract and as per clause 58 of the Contract, IOC can take appropriate action including termination. The dispute being in the realm of contract, under Article 226 of the Constitution, this court would not interfere when the proposed action is not arbitrary or unjustifiable which may shock the conscience of this court. 6.1(a) He has also relied on Civil Application No. 5890 of 2001 filed by IOC for vacating ex-parte interim relief granted by this court on 18.5.2001 and also documents produced by the IOC in this behalf. 6.2 Learned counsel for the respondent further submitted that it is no doubt, true that under Articles 226 and 227 of the Constitution this court may have limited jurisdiction even though the disputes are under the realm of the Contract Act. He further submitted that in any view of the matter, this court may not grant interim injunction in realm of contract particularly when the proceedings are pending before the authorities and the orders are interim orders in the realm of contract. In support of the same, he has relied on the following decisions: 6.2.1. TATA CELLULAR VS. UNION OF INDIA reported in (1994) 6 SCC 651 in which on page 687 at paragraph 94 the Hon'ble Supreme Court has observed as follows:- "The principles deducible from the above are: (1) The modern trend points to judicial restraint in administrative action. (2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, with the necessary expertise which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contact. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. (5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure." 6.2.2. AIR INDIA LTD. Vs. COCHIN INTERNATIONAL AIRPORT LTD. reported in 2000(1) Scale 346 in which on page 351 at para 7 the Hon'ble Supreme Court has observed thus:- "The