IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 08/04/2003 CORAM THE HON'BLE MR.JUSTICE P.D. DINAKARAN Writ Petition No.18802 of 1999 D. Santhappan .. Petitioner -Vs- 1. IBP Company Ltd. rep. by its General Manager 10, Mayor V.R.Ramanathan Road Chetpet, Chennai 600 031. 2. The Divisional Manager (Chennai Division) IBP Company Ltd. 10, Mayor V.R.Ramanathan Road Chetpet, Chennai 600 031. 3. The Regional Manager IBP Company Ltd. 10, Mayor V.R.Ramanathan Road Chetpet, Chennai 600 031. .. Respondents Petition under Article 226 of the Constitution of India praying for a writ of Certiorari as stated therein. For Petitioner : Mr.K.N. Basha For Mr. Ashok Kumar For Respondents : Mr.K. Kumar, ACGSC :O R D E R It is a typical case where the petitioner, an unemployed graduate, is challenging an arbitrary, unreasonable, capricious and perverse act of the respondents in cancelling the dealership granted to the petitioner under Social Objective Scheme on a vague and unsustainable ground, viz. the petitioner has failed to promote the sales of the products marketed by the company to the satisfaction of the company, by the impugned order dated 11.11.1999, quoting Clause 12(a)(i) of the agreement entered between the petitioner and the respondent Corporation, by exercising the power conferred under Clause 24 of the said agreement. 2. Admittedly, the petitioner was a successful applicant selected for the dealership in petroleum products by the petroleum Corporation, viz. High Speed Diesel under the category of unemployed graduates including unemployed Engineering graduates, supported by a Social Objective Scheme of the Government of India. The qualification and the merit of the petitioner for the above dealership was not disputed by the respondent Corporation. 3.1. Concededly, the public sector oil companies, in consultation with the Ministry of Petroleum, Government of India, have drawn up a scheme for the development of retail outlet Superior Kerosene Oil/ Light Diesel Oil (SKO/LDO) and Liquified Petroleum Gas (LPG) distributorship all over the country reserving 70% of these dealership and distributorship under the Social Objective Scheme. 3.2. The Social Objective Scheme is intended to benefit the following four categories of applicants. (a) SC / ST - 25% (b) unemployed graduates including unemployed Engineering graduate - 25% (c) physically handicapped / Government Personnel disabled on duty / widow of Government Personnel who died in the course of the duty - 15% (d) freedom fighters - 5%. 3.3. Realising the hardships that this class of dealers would be facing for raising adequate finance, a scheme was formulated to assist them by granting loans by banks on concessional terms both for working capital as well as term loan requirements. Accordingly, credit facilities would be given for (a) the purchase of stock in trade,i.e. petrol, diesel, lubricants, kerosene, light diesel oil and liquified petroleum gas. For this purpose, working capital to the extent of 75% of their total requirements will be given by the Public Sector Banks, and (b) purchase of machinery/equipment required for their conducting business, like service station and for construction of building, godown etc. They would be granted 'term loan'. Here again, 75% of the total requirements will be given by the Public Sector Banks as term loan. These financial assistance under the Social Objective Scheme were included under priority advances. 3.4. As per Clause I of Appendix I of the Social Objective Scheme, oil companies would proceed storing and dispensing equipments like underground storage tanks and dispensing pumps towards which the oil companies recover licence fee which is approved by the Ministry of Energy (Department of Petroleum). Accordingly, the distributor is expected to bear the expenses related to the civil construction like construction of sales room, boundary walls, road etc. and for buying equipments for dispensing of lubricating oils provision of air facilities (air compressor, air guage) service station equipments wherever required. 3.5. A harmonious reading of the above clause of Social Objective Scheme would make it clear that the said scheme is intended to give a permanent social security to the dealers/ distributors, who were classified as beneficiaries under the Social Objective Scheme, but not intended as a temporary measure of social security, otherwise, the very object of the scheme would be defeated. Of course, such object has to be achieved subject to the compliance of the terms and conditions by the dealer and distributor. In other words, the beneficiaries under the Scheme are not intended to violate any terms of the agreement, which is of course a non statutory contract. 3.6. In the instant case, pursuant to the grant of dealership to the petitioner under the Unemployed Graduate Category, an agreement was entered into between the petitioner and the respondent Corporation on 25.3.1987. In the agreement dated 25.3.1987, Clause 1 provides that the petitioner was appointed as a dealer for High Speed Diesel, Clause 2 provides that the agreement would remain in force for a period of 15 years and thereafter, it is at the option of the respondent Corporation to enter into a fresh agreement with the dealer for a further period of five years on the same terms and conditions. 3.7. A reference to Clause 12 and 13 of the said agreement is also relevant. Clause 12 of the agreement deals with the terms and conditions that are to be complied with by the dealer, while Clause 13 of the agreement provides the terms and conditions to be complied with by the company. These terms and conditions which are binding on the respective parties to the agreement and they should be scrupulously complied with by both the parties, during the period of contract, viz. 15 years. Any violation to Clause 12 of the agreement empowers the respondent Corporation to terminate the contract. 3.8. However, there is no provision under the terms of the agreement to protect the interest of the dealer when violations are committed by the company. The power to terminate the contract is found under two Clauses, viz. Clause 14 and 24. 3.9. The agreement is silent under which facts and circumstances of the case a company can invoke Clause 14 of the agreement even though Clause 24 of the agreement prevails over Clause 14 of the agreement, in view of the non obstante clause. In thi gard, it is relevant to extract both Clause 14 and Clause 24 of the agreement, which read as under. Clause 14: This Agreement may be terminated by either party giving to the other not less than thirty days' notice in writing of its intention to terminate it and upon the expiration of such notice this Agreement shall stand cancelled and revoked but without prejudice to the rights of either party against the other in respect of any matter or thing antecedent to such termination. Provided however that the requisite period of notice may be reduced or waived by mutual consent. Clause 24: Notwithstanding anything to the contrary hereinabove contained the Company shall be entitled to terminate this Agreement forthwith and without notice upon or at any time after the happening of any of the events following: (a)If the Dealer or the proprietor or any individual partner of the Dealer/s firm shall die or be adjudicated insolvent or upon dissolution of the firm for any reason whatsoever or if the Dealer/s being a Company go into liquidation, either voluntarily or otherwise or in the case of a Municipality if it is superseded by order of Government. (b)If an attachment is levied by order of Court upon the said outfit or any goods for the time being stored upon the premises of the facilities. (c)If the Dealer/s licence/s for the storage of petroleum products upon the premises of the said outfit is/are cancelled or revoked. (d)If the Dealer/s for any reason other than the Company's default fail to maintain supply to the public for any period exceeding twenty four hours. (e)If the Dealer/s fail to make payment of their outstanding within fourteen days of demand in writing by the company. (f)If the Dealer/s shall be guilty of a breach of any of the covenants and stipulations on their part contained in Clause 12 hereof. (g)If the Dealer/s shall commit or suffer to be committed any act, which in the opinion of the Manager of the Company for the time being in 10 Spur Tank Road, Chetpet, Madras 600 031 whose decision shall be final, is prejudicial to the interest or good name of the Company or its products. (h)Upon termination of any other agreement between the parties without prejudice to any other right or remedy reserved thereunder. (i)If the Dealer fails to perform and observe any stipulation herein contained. 3.10. Clause 14 of the agreement could be invoked by either of the parties giving 30 days notice in writing of its intention to terminate the contract. Proviso to Clause 14 of the agreement however provides the waiver of notice by mutual consent. A bare reading of Clause 14 makes it clear that it is intended only in a case where Clause 24 of the agreement is not attracted. 3.11. Under Clause 24 of the agreement, the Company is empowered to terminate the agreement under the following occasions, viz. when the dealer become insolvent; if the premises is attached by the Court order; if the licence is cancelled or revoked; if the dealer fails to maintain supply to the public; if the dealer fails to make the payment within the stipulated time; if the dealer is guilty of any breach of the covenant contained in Clause 12 of the agreement; if the dealer commits or suffers to commit any act prejudicial to the interest or good name of the company; upon termination of any other agreement between the parties without prejudice to any other right or remedy reserved; and if the dealer fails to perform and observe any stipulation herein contained. 3.12. Exercising this power under Clause 24(f) read with Clause 12( a)(i) of the agreement, a show cause notice dated 15.10.1999 was issued to the petitioner proposing to terminate the dealership awarded to him, which reads as under. "Ref: GD/MDS/18 15th October, 1999 M/s. Arula Agencies Cuddalore Salem Road Virudhachalam 606 003. South Arcot Dist. SHOW CAUSE NOTICE Sub: Termination of License under Agreement dated 25.3.1987 - Show Cause Notice - Regarding. We refer to the Indenture of MS and HSD Dealer Agreement for dealer owned site made between us on 25.03.1987 and specifically to Clause 12 (a)(i) and 24(d) and (f) which are extracted hereunder:- Clause 12: The Dealer/s hereby covenant and agree with the Company as follows:- (a)(i)To promote the sales of the products marketed by the Company to the satisfaction of the Company. Clause 24 Notwithstanding anything to the contrary hereinabove contained the Company shall be entitled to terminate this Agreement forthwith and without notice upon or at any time after the happening of any of the events following:- (d) If the Dealer/s for any reason other than the Company's default fail to maintain supply to the public for any period exceeding twenty four hours. (f) If the Dealer/s shall be guilty of a breach of any of the covenants and stipulations on their part contained in Clause 12 hereof. We refer to our various letters regarding your dryouts and poor performance since March, 1992 especially our letters dated 26.09.98, 09.05 .99 and 11.08.99. In the above circumstances, please SHOW CAUSE why the license granted to you as per the Indenture dated 25.03.1987 should not be terminated as on 05.11.1999. Any explanation you wish to offer may be in writing and should reach us on or before 28.10.99. Yours faithfully, For IBP Co. Limited, Sd/- DIVISIONAL MANAGER " 3.13. On receipt of the said show cause notice dated 15.10.1999, the petitioner submitted his explanation dated Nil which was received by the Corporation on 27.10.1999. In the said explanation, the petitioner stated that in spite of his information to the Corporation about the leakage of water in the tank on 17.12.1998, the respondent Corporation had not paid due attention to the said complaint, and that the Assistant Manager, by name Ajit Nair was threatening to hand over the retail outlet to somebody else and therefore, the reason to terminate the contract is not bona fide. 3.14. However, the respondent Corporation, by order dated 11.11.1999 terminated the dealership, which reads as under. "Ref: TN/63 11th November 1999 M/s. Arula Agencies Cuddalore Salem Road Virudhachalam 606 003 South Arcot District. Dear Sirs, Sub: Termination of Dealership Agreement dated 25.03.87. This has reference to the Show Cause Notice dated 15.10.99 wherein we had issued notice as to why the license granted to you as per indenture dated 25.03.87 should not be terminated. We have also asked your explanation in Show Cause Notice to reach us on or before 28.10.99. After careful consideration of the materials and the explanation offered by you vide your written reply dated nil received on 27.10.99, we are to inform you that we are not satisfied as the same is not in accordance with the terms and conditions agreed between us vide the Dealership Agreement dated 25.03.87. We hereby reject the explanation offered in your reply letter, as per the terms and conditions of the Dealership Agreement dated 25.03.1987 Clause 12 and 24, as reproduced below: Clause 12 The Dealer/s hereby covenant and agree with the Company as follows: (a)(i) To promote the sales of the products marketed by the Company to the satisfaction of the Company. Clause 24 Notwithstanding anything to the contrary hereinabove contained the Company shall be entitled to terminate this Agreement forthwith and without notice upon or at any time after the happening of any of the events following:- (d) If the Dealer/s for any reason other than the Company's default fail to maintain supply to the public for any period exceeding twenty four hours. (f) If the Dealer/s shall be guilty of a breach of any of the covenants and stipulations on their part contained in Clause 12 hereof. It is a clear case of breach of agreement and therefore, we hereby terminate the Dealership Agreement dated 25.03.87. You are requested to hand over the Company equipments to us immediately. Thanking you Yours faithfully, For IBP Co. Ltd. Sd/- GENERAL MANAGER - SR " 4. Aggrieved by the above order of termination dated 11.11.1999, the petitioner has preferred the above writ petition. 5.1. Mr.K.N. Basha, learned counsel for the petitioner assails the impugned order of termination on the ground of malafide, arbitrary exercise of power, contending that both the show cause notice and the final order suffer from vagueness and that the decision of the respondent in terminating the dealership is arbitrary and unreasonable, as per the decision in HARBANSLAL SAHNIA & ANOTHER v. INDIAN OIL CORPORATION LTD. & OTHERS reported in 2003 (1) CTC 189. 5.2. The learned counsel for the petitioner, to buttress his argument, invited my attention to the representations of the petitioner dated 21.12.1998 and 6.1.1999 and the legal notice dated 13.4.1999, issued on behalf of the petitioner, as well as the correspondence of the respondent Corporation dated 11.8.1999, just two months prior to the show cause notice dated 15.10.1999, and submits that the very reference to various letters regarding the dry outs and poor performance since March 1992 relied upon in the show cause notice is unsustainable in law as the said allegation was not found in the letter dated 11.8.1 999 which was made just two months prior to the show cause notice. 5.3. He further contends that only when the petitioner requested the respondent Corporation by his letter dated 21.12.1998 and 6.1.1999, to rectify the leakage of the tank and complained about the inaction of the company in this regard, which necessitated the petitioner to issue a legal notice dated 14.4.1999, the respondent proposed to initiate the impugned proceedings to terminate the dealership of the petitioner stating that the petitioner failed to promote the sale to the satisfaction of the company, quoting Clause 12(a)(i) of the agreement. Mr.K.N. Basha, also brought to my notice that the legal action proposed by the petitioner pursuant to the notice dated 14.4.1999 was also made to be withdrawn by the petitioner in his letter dated 5.7.199 9, at the instance of the respondent Corporation. According to the learned counsel, these materials apparent on the face of record would disclose the malicious attitude on the part of the respondent Corporation in initiating action against the petitioner in terminating the dealership. 6.1. Antagonizing these contentions, Mr. Kumar, learned Additional Central Government Standing Counsel appearing for the respondents, at the outset, took a strong objection that the writ petition is not maintainable in law, as the termination of a non statutory contract by the respondent Corporation cannot be tested under judicial review, invoking Article 226 of the Constitution of India, placing reliance on JENARATHANAN, B v. THE SENIOR REGIONAL MANAGER, HINDUSTAN PETROLEUM CORPORATION reported in 2000 (1) LW 502, SITARAMAN, S. v. HINDUSTAN PETROLEUM CORPN. LTD. reported in 2000 WLR 739, B. VENKATASAMY v. G.M. SOUTHERN RAILWAY reported in 1998 (1) CTC 269, M/s. SWAMY SERVICE STATION v. BHARAT PETROLEUM CORPORATION LIMITED reported in (2002) 1 MLJ 740, which were supported by decisions of Division Bench of this Court in GENERAL MANAGER, I.B.P.CO. LTD. v. JAYANTHI SELVARAJAN reported in 2000 WLR 807, SITARAMAN, S. v. HINDUSTAN PETROLEUM CORPN. LTD. in W.A.No.2609 of 1999, UNION OF INDIA REP. BY ITS SECRETARY TO GOVT., MINISTRY OF PETROLEUM AND NATURAL GASES, NEW DELHI, & OTHERS v. SRI GAYATHRI AGENCIES in W.A.Nos.521 to 527 of 2000, supported by a decision of Allahabad High Court in M/S. KAMLA MOTORS 6 ENGINEERING WORKS v. IBP CO. LTD. reported in 2001 AIHC 437. 6.2. Apart from the above preliminary objection, the learned counsel for the respondent Corporation, on the merits of the case, inviting my attention to the averments in the counter affidavit, contends that the petitioner failed to improve the business in spite of their letters dated 24.3.1992, 2.9.1992, 8.9.1992, 21.9.1992, 22.11.1995, 4.9.1 998, 26.9.1998 etc. It is therefore, contended that only due to the poor performance over the period since 1992, the respondent was constrained to terminate the dealership by the impugned order. It is also contended that in any event, the dealership itself has come to an end by efflux of contractual period, viz. 15 years from the date of the appointment and therefore, the petitioner is not entitled to seek the relief as prayed for, as a matter of right. 7. I have given careful consideration to the submissions of both sides. 8. The cardinal questions that arise for my consideration in this writ petition are (i) Whether the petitioner is entitled to seek the relief as prayed for, invoking Article 226 of the Constitution of India, challenging the order of termination? (ii) Whether the order of termination of dealership is sustainable in law? and (iii) To what relief the petitioner is entitled to? 9.1. Question No.(i): Whether the petitioner is entitled to seek the relief as prayed for, invoking Article 226 of the Constitution of India, challenging the order of termination? 9.2. It is true, in JENARATHANAN, B v. THE SENIOR REGIONAL MANAGER, HINDUSTAN PETROLEUM CORPORATION reported in 2000 (1) LW 502, this Court has held that no writ will lie against the order of suspension of dealership made under the Motor Spirit and High Speed Diesel ( Prevention of Malpractices in Supply and Distribution) Order, 1990. 9.3. Similar view has been taken by other Judges in SITARAMAN, S. v. HINDUSTAN PETROLEUM CORPN. LTD. reported in 2000 WLR 739, B. VENKATASAMY v. G.M. SOUTHERN RAILWAY reported in 1998 (1) CTC 269, M/s. SWAMY SERVICE STATION v. BHARAT PETROLEUM CORPORATION LIMITED reported in (2002) 1 MLJ 740, which were supported by decisions of Division Bench of this Court in GENERAL MANAGER, I.B.P.CO. LTD. v. JAYANTHI SELVARAJAN reported in 2000 WLR 807, SITARAMAN, S. v. HINDUSTAN PETROLEUM CORPN. LTD. in W.A.No.2609 of 1999, UNION OF INDIA REP. BY ITS SECRETARY TO GOVT., MINISTRY OF PETROLEUM AND NATURAL GASES, NEW DELHI, & OTHERS v. SRI GAYATHRI AGENCIES in W.A.Nos.521 to 527 of 2000, supported by a decision of Allahabad High Court in M/S. KAMLA MOTORS 6 ENGINEERING WORKS v. IBP CO. LTD. reported in 2001 AIHC 437. 9.4. Even though, it is not in dispute that the contract in question is non statutory in character and it is trite law when a contract entered into between the parties is non statutory and purely contractual, relations are no longer governed by constitutional provisions, but by a legally valid contract, which determines the rights and obligations of the parties inter se, the said rule has got exceptions, viz. whether the decision making authority, exceeds the power or while exercising the power within the limits, the decision making authority acts arbitrarily, perversely and capriciously or commits an error of law which is apparent on the face of the record or commits a breach of rule of natural justice or abuses his power maliciously, in the result, such decision is held to be not only irregular and suffers from procedural impropriety, but also illegal and irrational applying the principles of Wednesbury, vide TATA CELLULAR v. UNION OF INDIA reported in AIR 1996 SC 11 and WHIRLPOOL CORPORATION v. REGISTRAR OF TRADE MARKS reported in 1998 (8) SCC 1. All these decisions factually relate to the question of adulteration or based on the malpractice and adulteration, which arise under a case of contamination or a malpractice or deficiency in quality or violation to observe the provisions of Petroleum Act or the Rules framed therein, or related to under rated sales or over rated sales; or arise on the complaint as to short delivery of petrol; or for having used the petroleum products for any other purpose; or having sold to other dealers whose dealership has already been terminated by the company etc.; but not related to Clause 1 2(a)(i) of the agreement which has given room for the petitioner in the instant case alleging arbitrary, unreasonable exercise of powers by the respondent Corporation. Therefore, the ratio laid down in the decisions relied upon by the respondent will not, in any way, support the contention of the learned counsel for the respondent to hold that the writ petition will not lie against the impugned order. 9.5. That apart, the Apex Court in ONKAR LAL BAJAJ v. UNION OF INDIA reported in (2003) 2 SCC 673, wherein the cancellation of dealership of the petroleum product in en masse was challenged assailing the arbitrary, perverse and capricious act of the Central Government, held that judicial review against such cancellation of the dealership is permissible. 9.6. Question No.1 is answered in positive. 10.1. Question No.2: Whether the order of termination of dealership is sustainable in law? 10.2. It is settled law that while exercising the power of judicial review under Article 226 of the Constitution of India, this Court is obliged to only test the correctness of process of decision taken, but not the decision itself. Therefore, the impugned order of termination of dealership is liable to be tested under judicial review only within a limited scope to find as to the errors in the decision making process, but not as to the decision taken by itself. 10.3. The terms of the contract agreement between the parties dated 25.3.1987 were already referred to in brief. 10.4. Clause 24 of the agreement contemplates 23 terms and conditions to be complied with. Any one of the breach of the said terms and conditions would empower the respondent Corporation to invoke Clause 2 4 of the agreement to terminate the dealership. 10.5. In the instant case, we are only concerned with Clause 12(a)( i) of the agreement which reads as follows. "Clause 12: The Dealer/s hereby covenant and agree with the Company as follows:- (a)(i)To promote the sales of the products marketed by the Company to the satisfaction of the Company. (ii) To provide facilities, and instal equipment at his/their own expense at the said site as may be considered necessary by the Company, and not to make any alteration thereto. All civil work