IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No 160 of 1989 in SPECIAL CIVIL APPLICATION No 3943 of 1982 For Approval and Signature: Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE A.M.KAPADIA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? Yes 2. To be referred to the Reporter or not? Yes : 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? No 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? : No -------------------------------------------------------------- M.S.DESAI & CO. Versus HINDUSTAN PETROLEUM CORP.LTD. -------------------------------------------------------------- Appearance: MR VB PATEL SR ADVOCATE WITH MR DG CHAUHAN for Appellant MR BJ SHELAT WITH MR GN SHAH for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE A.M.KAPADIA Date of decision: 11/04/2000 ORAL JUDGEMENT (Per J.M. Panchal, J.): 1. The judgment under challenge in this appeal which is filed under clause 15 of the Letters Patent is rendered by the learned Single Judge on November 24, 1988 in Special Civil Application No. 3943 of 1982 whereby challenge made by the appellant to the order dated November 24, 1982, terminating petroleum products dealership agreement, is negatived. 2. The appellant is a partnership firm registered under the provisions of the Partnership Act. The respondent Corporation carries on the business of refining and sale of petroleum products. The Corporation is a lessee of a plot of land situated by the side of National Highway No.8 at Bareja. The Corporation has installed apparatus and equipments such as three electric operated dispensing pumps, storage tank, air compressor, air gauge, battery charger, etc. The respondent Corporation had appointed the appellant as its dealer at the said premises for retail sale and/or supply of petroleum products on the terms and conditions mentioned in agreement dated October 1, 1964. Thereafter various dealership agreements were entered into between the respondent Corporation on the one hand and the appellant firm on the other. The last of such agreement was dated August 2, 1976. A sample of petrol sold at the retail outlet of the appellant was taken on July 22, 1981 and was subjected to laboratory test. The report received on October 30, 1981 indicated that the petrol sold at the appellant's retail outlet was adulterated. Therefore, on November 10, 1981 an explanation was sought for from the appellant and supply of petroleum products to the appellant was suspended. Against suspension of supply of petroleum products, the appellant had made representation dated November 16, 1981. On July 1, 1982 a notice was issued to the appellant to show cause as to why the dealership agreement should not be terminated. That notice was issued as per clauses 26, 42, 44 and 55(A) of the dealership agreement. The appellant had submitted reply on July 7, 1982 and requested the respondent to restore supply of petroleum products. As the supply of petroleum products was not restored, the writ petition out of which the present appeal arises i.e., Special Civil Application No. 3943 of 1982 was filed by the appellant in the High Court on September 21, 1982. No final decision was taken by the respondent - Corporation though show cause notice was issued to the appellant because of the institution of the petition by the appellant. In the petition, the appellant had relied upon instructions dated 1.3.1982 issued by Ministry of Petroleum wherein inter-alia it was stipulated that a repeat sample should be taken and on its failure dealership agreement should be terminated. It was pleaded on behalf of the appellant that there was no second lapse on its part and therefore the Corporation had no authority to issue notice calling upon the appellant to show cause as to why the dealership agreement should not be terminated. The learned Single Judge of this Court had, by an interim order dated November 2, 1982, directed the respondent Corporation to treat the petition as the appellant's representation and pass a speaking order after taking into consideration guidelines issued by the Ministry of Petroleum on March 1, 1982, and determine whether this was a case of first lapse or a second lapse. The interim order passed by the High Court in the petition is on page 277 of the appeal compilation. Thereafter a speaking order dated November 24, 1982 was passed by the respondent-Corporation terminating the appellant's dealership. That order is on page 45 of the appeal compilation. The order dated November 24, 1982 terminating the appellant's dealership was brought on record by amending the petition. That order was challenged on diverse grounds before the learned Single Judge. In the reply affidavit four preliminary objections to the maintainability of the petition were raised by the respondent Corporation. Out of the four preliminary objections, the first two i.e., (1) that the respondent Corporation was not a State and (2) that the relationship between the parties was governed by a contract and, therefore, the Court's jurisdiction was not attracted, were pressed before the learned Single Judge. The contention that the respondent Corporation was not a State was negatived but the contention that writ petition was not maintainable as relationship between the parties was governed by a contract between them was upheld. The writ petition was, therefore, dismissed by the learned Single Judge as not maintainable by judgment dated December 21, 1983. Feeling aggrieved by the said judgment, the appellant preferred Letters Patent Appeal No. 98 of 1984 before the High Court. The Division Bench hearing the appeal considered following question: "Can the alleged arbitrary action of a Government Company which is a State within the meaning of Article 12 of the Constitution, emanating from the alleged breach of binding executive instructions issued to it by the Central Government for regulating the Company's dealings with third parties with whom such Company might have entered into contracts, be brought in challenge under Article 226 of the Constitution of India for testing it on the anvil of Article 14 of the Constitution?" The Division Bench referred to the decision of the Supreme Court in Radhakrisha v. State of Bihar, AIR 1977 SC 1496 wherein three categories of cases in which question of maintainability of writ application against the State authorities acting as contracting parties were considered. Those categories were (i) where the petitioner makes a grievance of breach of promise on the part of the State in case where on assurance or promise made by the State he has acted to his prejudice and predicament but the agreement is short of a contract within the meaning of Article 299 of the Constitution; (ii) where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or rules framed thereunder and the petitioner alleges a breach on the part of the State and (iii) where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract and the petitioner complains about breach of such contract by the State. In Radhakrishna's case it was held that out of the aforesaid three categories of cases, cases falling under the third category cannot be considered in proceedings under Article 226 of the Constitution while the first two categories of cases can be considered in such proceedings. The Division Bench hearing the Letters Patent Appeal, on the peculiar facts of the case as alleged in the petition, held that neither category (ii) nor category (iii) was attracted, but the case was governed entirely by a new category of cases, i.e., category (iv) viz., where a contract is entered into between an instrumentality of the State which is a State within the meaning of Article 12 of the Constitution and a private party and the grievance of the private party to the contract is that the contract is terminated in an arbitrary manner by such instrumentality of the State acting contrary to the binding executive instructions issued by its principal viz., the Government and which results in arbitrary exercise of powers by the instrumentality of the State violating the guarantee of Article 14 of the Constitution. After holding that the case pleaded by the appellant in the case was governed by above mentioned fourth category, the Division Bench set aside the order passed by the learned Single Judge dismissing the petition in limine and held that petition under Article 226 of the Constitution was competent for redressing the grievance of the appellant. Because of the decision of the Division Bench rendered in Letters Patent Appeal No. 98 of 1984 the petition was again listed for decision on merits before the learned Single Judge of the High Court. The learned Single Judge noticed that the first set of instructions dated March 27, 1980 was the minutes of the meeting dated March 27, 1980 on the subject of marketing discipline and uniform action by field office on reported cases of malpractices at petrol/HSD/kerosene retail outlet and as it was not exhaustive but illustrative in nature, the respondent Corporation was entitled to evolve its own standards for termination of dealership agreement or fall back upon the agreement itself for taking appropriate action in case of adulteration of petroleum products. According to the learned Single Judge, these instructions were prevailing on the date when the misconduct had taken place on July 22, 1981 and when test report was received on October 30, 1981 as well as when explanation was sought on November 10, 1981 and was submitted by the appellant on December 28, 1981. The learned Single Judge, therefore, concluded that the Government instructions dated March 1, 1982 for prevention of adulteration at retail outlets enabling the respondent Corporation to terminate dealership on failure of repeat sample were not applicable. The learned Single Judge further noted that the third set of instructions dated October 4, 1982 issued by the Government of India, Ministry of Petroleum also provided that in cases of proven adulteration, even for the first offence, the punishment should be one of termination of supplies and dealership and as the instructions contained in para 1 of Shri R.K. Bhargav's D.O. letter dated March 1, 1982 were amended and as order terminating dealership was passed on November 24, 1982, the action of the respondent Corporation in terminating the dealership was justified in view of the third set of instructions dated October 4, 1982, read with different clauses of the agreement. In view of these conclusions, the learned Single Judge has dismissed the petition by judgment dated November 24, 1988 which has given rise to the preset appeal. 3. Mr. V.B. Patel, learned Senior Advocate for the appellant, contended that the petition does not relate to breach of contract but relates to enforcement of policy decision as well as arbitrary action of terminating dealership agreement contrary to the binding policy and therefore the petition is maintainable. It was pleaded that the respondent had no power or authority or jurisdiction to issue the show cause notice in the absence of repeat test failure which is a jurisdictional fact in view of the policy dated March 1, 1982 issued by the Ministry of Petroleum, regulating procedure regarding marketing discipline for uniform action for prevention of adulteration at retail outlets and, therefore, the impugned judgment should be set aside. According to Mr. Patel, learned Senior Counsel for the appellant, the so-called amendment in Government policy dated March 1, 1982 alleged to have been made on October 4, 1982 is not a policy decision issued by the concerned Ministry in exercise of the executive powers but is merely an agreement/understanding arrived at, at a meeting of the Chief Executives of different Companies and, therefore, the decision terminating dealership agreement could not have been justified on the basis of so-called amendment made on October 4, 1982. What was maintained was that the lapse committed prior to the so-called amendment of Government policy dated March 1, 1982 on October 4, 1982 is not procedural but provides a ground for termination of dealership in the case of first lapse and as the policy issued on March 1, 1982 was procedural and created a vested interest, the petition ought to have been allowed by the learned Single Judge. In the alternative it was argued that even if the so-called amended instructions were valid, the same cannot be applied to the facts of the case in view of the principle that no one can be penalised on the ground which was not a misconduct on the day on which the sample was taken, an explanation was called for and show cause notice was issued and, therefore, the decision to terminate the dealership agreement should be set aside. According to the learned counsel for the appellant, the impugned order terminating the dealership is made on several grounds in relation to which no opportunity of hearing was given to the appellant and the principle of audi-alteram-partem being a part of Article 14 of the Constitution, the order terminating dealership should have been set aside by the learned Single Judge. It was emphasised by the learned counsel for the appellant that the discretionary power to terminate the dealership was exercised improperly, mistakenly and by making up mind in advance and, therefore, the appeal should be accepted. It was also stressed that the appellant was appointed as a dealer since 1964 and in past had not committed any lapse till the date sample was taken and as the respondent Corporation has failed to act fairly and reasonably in accordance with the spirit of the policy and as the punishment of termination of dealership is out of proportion and harsh, the appeal should be allowed and the respondent should be directed to restore the dealership in favour of the appellant. In support of these submissions, learned counsel for the appellant placed reliance on (i) Kumari Shrilekha Vidyarthi and others v. State of U.P. and others, (1991) 1 SCC 212, (ii) Comptroller and Auditor General of India, Gain Prakash, New Delhi and another v. K.S. Jagannathan and another, (1986) 2 SCC 679, (iii) Express Newspapers Private Limited and others v. Union of India and others (1986) 1 SCC 133, (iv) Mohammed Hanif v. The State of Assam, (1969) 2 SCC 782, (v) Sterling Computers Limited v. M/s. M & N Publication Limited and others, (1993) 1 SCC 445, (vi) M/s. New Samundri Transport Co. (P) Ltd. v. The State of Punjab and others, AIR 1976 SC 57, (vii) Mohinder Singh Gill and another v. The Chief Election Commissioner, New Delhi and others, AIR 1978 SC 851, (viii) Nasir Ahmed v. Assistant Custodian General, Evacuee Property, U.P. Lucknow and another, AIR 1980 SC 1157 and (ix) Govidsingh Ramsinghbhai Vaghela v. G. Subbarao, Assistant Collector, Dholka and others, XI GLR 897. 4. Mr. B.J. Shelat, learned counsel for the respondent Corporation, contended that a petition under Article 226 of the Constitution for specific performance of dealership agreement is not maintainable and therefore the appeal should be dismissed. It was urged that instructions in force on the date when sample was taken would be relevant for the purpose of deciding the question whether the decision of the Corporation to terminate dealership agreement is proper or not and as the first set of instructions dated March 27, 1980 on the subject of marketing discipline and uniform action by field office on reported cases of malpractices at Petrol/HSD/Kerosene retail outlets were not exhaustive but illustrative and did not deal with adulteration, the respondent Corporation was free to evolve its own standards for terminating dealership or to fall back upon the agreement for the said purpose and, therefore, the decision to terminate the dealership agreement was just and proper. It was pleaded that second set of instructions dated March 1, 1982 had no relevance as it was subsequent to the date of not only taking of sample but also to the notice seeking explanation which was issued on November 10, 1981 and, therefore, the learned Single Judge was justified in not granting any relief to the appellant on the basis of the instructions dated March 1, 1982. According to the learned counsel for the respondent Corporation, when the impugned order terminating the dealership agreement was passed on November 24, 1982, the instructions dated March 1, 1982 were amended by instructions dated October 4, 1982 and, therefore, the action of the respondent Corporation in terminating the dealership agreement in case of proven adulteration by the appellant even for a first offence, was justified. What was asserted on behalf of the respondent Corporation was that as is indicated in the order dated November 24, 1982 by which dealership agreement was terminated, the appellant had committed several malpractices and thereby committed breach of clause 42 of the agreement and, therefore, the respondent Corporation was justified in terminating the dealership agreement in view of clauses 3, 26, 42, 44 and 55 (A). The learned counsel for the respondent referred to the show cause notice and submitted that past misconducts were also referred to in the said notice and, therefore, it is wrong to contend that past misconducts were for the first time referred to in the impugned order terminating dealership agreement without giving opportunity of being heard to the appellant. In the alternative, it was pleaded that malpractices or other incidents were mentioned in the impugned order as part of history or background or conduct of the appellant and, therefore, mention about the same in the order terminating the dealership agreement would not vitiate the order provided the main ground which had nexus to the alleged offence and the penalty were expressly stated and if the delinquent had opportunity to meet with the same by giving reply. It was claimed that in the present case the appellant was given opportunity to give explanation and as there was complete compliance with principles of natural justice, the impugned order was not vitiated in any manner. The learned counsel for the respondent emphasised that the question whether there is any breach of principles of natural justice or not has to be judged in the light of interim direction given by the Court in the petition which required the Corporation to treat the petition as a representation of the appellant and if in the light of averments made in the petition past misconducts are referred to it cannot be said that there is any breach of principles of natural justice. It was maintained that in this case from the beginning, the appellant has admitted that petrol was adulterated by solvent and as the explanation offered by the appellant was not found to be convincing, the same was not accepted and in view of the adulteration in petrol, the respondent Corporation was justified in terminating the dealership agreement. Mr. Shelat, learned counsel for the respondent Corporation, emphatically pointed out that in such matters High Court does not exercise appellate jurisdiction over the decision of the Corporation but is concerned only with decision making process and as decision making process is not vitiated in any manner, the appeal should be dismissed. In support of these submissions, the learned counsel placed reliance on (i) M/s. Radhakrishna Agarwal & others v. State of Bihar and others, AIR 1977 SC 1496, (ii) Ramanna Dayaram Shetty v. International Airport Authority of India and others, (1979) 3 SCC 489, (iii) Indian Oil Corporation Limited v. Amritsar Gas Service & others, (1991) 1 SCC 533, (iv) Tata Cellular v. Union of India, AIR 1996 SC 11, (v) Indian Oil Corporation Limited v. Parmar Jadavji Dhanji, 1998 (2) GLR 10098, (vi) Raunaq International Limited v. V.C. Construction Limited, AIR 1999 SC 393, (vii) Larsen & Toubro Limited v. Gujarat State Petroleum Corporation Limited and others, LPA No. 53 of 2000 decided by Division Bench comprising D.M. Dharmadhikari, C.J. & C.K. Thakkar J., (viii) Air India Limited v. Cochin International Air Port Limited, JT 2000 (1) SC 481, (ix) M/s. Navnitlal & Co. v. Indian Oil Corporation and another, Special Civil Application No. 4757 of 1982 decided by R.C. Mankad, J. (as he then was) on December 22, 1982 and (x) M/s. Navnitlal & Co. v. Indian Oil Corporation and another, Letters Patent Appeal No. 467 of 1982 in Special Civil Application No. 4757 of 1982 decided by Division Bench comprising M.P. Thakkar C.J. (as he then was) and D.H. Shukla, J. on December 29, 1982. 5. We have heard the learned counsel for the parties and taken into consideration the documents forming part of the original petition as well as instructions which are on the record of the case. 6. As observed earlier, the Division Bench in Letters Patent Appeal No. 98 of 1984 has held that where a contract is entered into between the instrumentality of the State which is State within the meaning of Article 12 of the Constitution and a private party and the grievance of the private party to the contract is that the contract is terminated in an arbitrary manner by such instrumentality of the State acting contrary to the binding executive instructions issued by its principal viz., the Government and has arbitrarily exercised the power by violating the guarantee of Article 14 of the Constitution, a petition under Article 226 of the Constitution raising such a grievance is maintainable. We may state that the decision which was rendered by the Division Bench in Letters Patent Appeal No. 98 of 1984 is accepted by the respondent Corporation and was not subjected to challenge before higher forum. Under the circumstances, it is not necessary for us to go into the question of maintainability of the writ or to refer to several decisions of the Supreme Court cited at the bar wherein a view is expressed to the effect that a petition for enforcement of public policy is maintainable. 7. The main question which falls for our consideration is whether the grievance made by the appellant that dealership agreement is terminated in an arbitrary manner contrary to the binding executive instructions dated March 1, 1982 is well founded. In order to resolve this controversy, it would be relevant to notice different instructions which are relied upon by the parties and to ascertain as to which instructions would be applicable to the facts of the present case. Before undertaking this exercise, we propose to examine the scope and ambit of directions which are being issued by the administrative authorities. The modern phenomenon in administrative process is an emergence of the institution of directions. Directions are less formal than rules. Administrative authorities issue directions for a variety of purposes and in a variety of ways, for example, through letters, circulars, instructions, orders, memoranda, directives, bulletins, guidelines, manuals, pamphlets, public notices, press notes, clarifications, etc. Directions may be specific being applicable to a specific person or matter or may be general in nature laying down some general norm or principle or policy, practice or procedure to be followed in all similar cases. The directions are part and parcel of the internal administrative procedure of a Government Department. When a number of officials are engaged in executing a law and taking decisions thereunder, directions may serve the purpose of laying down some criteria to be followed by these officials in discharge of their functions so that there may be some uniformity of approach in disposing of similar cases by various officials. Directions are issued under the Government's administrative and not legislative power. Articles 73 (1) and 162 confer administrative power on the Central and the State Government respectively. For example, Article 73 (1) says that subject to the provisions of the Constitution, the executive power of the Union extends to matters with respect to which parliament has power to make laws. Similarly, under Article 162, the executive power of the State extends to matters with respect to which a State