HIGH COURT OF CHHATTISGARH AT BILASPUR WritADDealNo.353of2010 APPELLANTS Respondents RESPONDENTS Vs. Hindustan Petroleum Corporation Ltd. and another Ayush Petro! Pump and another JUDGMENTFOR CONSIDERATION Sd/- JUDGE 0\ /1/2011 HON'BLE SHRI R.N. CHANDRAKAR. J 5 0U^^ Sd/- R.N. Chandrakar Judge POST FOR JUDGMENT ON o^-1-2011 Sd/- Dhirendra Mishar Judge HIGH COURT OF CHHATTISGARH AT BILASPUR DB: Hon'ble Shri Dhirendra Mishra & Hon'ble Shri R.N. Chandrakar, JJ. WritADDealNo.353of2010 APPELLANTS Respondents 1. 2. RESPONDENTS Vs. 1. 2. Hindustan Petroleum Corporation Ltd. through the Senior Regional Manager, Madina manzil, 2nd Floor, Medical College Road, Raipur (CG) Manager Depot, Hindustan Petroleum Corporation Ltd., Mandirhasaud, Raipur(CG) Ayush Petrol Pump Through Proprietor Dr. M.K. Agrawal, s/o. Late M.L. Agrawal, aged about 41 years, R/o. Agrawal Medical Stores, Bus Stand Charoda, Distt. Durg (CG) Union of India, Through the Secretary, Ministry of Petroleum and Natural Gas, Government of India, New Delhi. Present: Shri P.S. Koshy with Shri N. Naha Roy, counsel for the appellants. Shri Sanjay K. Agrawal with Shri Jitendra Pali, counsel for respondent No.1. Shri Anand Verma, counsel for respondent No.2/Union of India. JUDGIME_NT \ (Delivered on 3 January, 2011) The following judgment of the Court was delivered by Dhirendra Mishra^J. 1. With the consent of the parties, appeal was finally heard. 2. Respondent-firm was appointed as dealer for sale of petroleum products including M.S. and H.S.D w.e.f. 23rd March, 2005 by the appellants. The respondent was under obligation to pay full price of delivery to be made on the supplies received at the depot effecting the sale of the products. As per terms and conditions of the dealership ^s> \^ agreement between the parties, the respondent was also required to pay in cash or through demand draft against the supplies to be made, however, the appellant-Corporation had discretion to supply the products by credit /cheque facility and accordingty cheque facility was extended to respondent-dealer. The respondent herein left blank signed cheques with the appellant-Corporation against the supply of each product through tank/truck. The cheques were presented in the bank by the appellant-Corporation. As per clause 10 of the dealership agreement, the cheques presented in the bank were required to be honoured within the period of credit allowed without any deduction, however, the respondent kept on dishonouring the cheque for a long period despite supplies being made to him and, therefore, from 30.07.2009, his supplies were suspended. 3. The appellant issued notice dated 01.08.2009 to the respondent to arrange to pay the sum as also to explain reason for committing delay in making the payment. He was again served with a notice dated 07.08.2009 intimating details of the dishonoured instruments, detaits of the draft payment of the above dishonoured cheques and balance amount outstanding against the respondent. The respondent was also called upon to explain the reason for giving outstation cheques instead of local cheques. 4. The respondent submitted his reply on 25.08.2009 and tried to explain the delay and also submitted that payment towards supplies received on 04.07.2009 was made by demand draft dated 17.08.2009. The respondent was served with a show-cause notice on 25.08.2009 calting upon him to explain the violation of Clause 10, 11, 12, 42, 44, ^) 55(g) and 55 (k) of the dealership agreement committed by him and contemplating appropriate action under the dealership agreement dated 24.02.2005. The respondent has submitted'his reply dated 27.08.2009 to the show-cause notice and tried to explain the circumstances in which the cheques were dishonoured. After receipt of reply, dealership agreement was terminated by the appellant- Corporation vide order dated 21.12.2009. 5. The respondent filed a writ petition against the order of termination of dealership and same has been aliowed by the learned Single Judge vide impugned order of Annxure-A/1. 6. Shri P.S. Koshy, learned counsel for the appellants argued that in view of the arbitration Clause 66 provided in the dealership agreement, the writ petition was not maintainable as the respondent could invoke arbitration clause by making suitable application for appointing arbitrator. There was a clear breach of clause 10, 11, 12,' 42, 43, 44, 55(G)and 55(K) of the agreement by the respondent and which could not be ignored only on the ground that he remitted the entire amount due against him. The respondent was duty bound to ensure that the cheques drawn against the supplies made by the appellants were duly honoured and dishonouring cheques is violation of Clause 55 (G), non exercise of penal clause terminating the dealership agreement for the first occasion cannot be treated as waiver on the part of the appellant-Corporation disqualifying it from exercising the same after a series of dishonouring of the cheques. Finding of learned Single Judge that all the payments were made within 4 days after the demand is contrary to record as the demands -'^ ''^ -ite^. 1 i •^si% 't I.. I. 'l J '"fe.. '^^ ^ ,^ were raised by the appellant on 01.08.2009 for payment against dishonouring of cheque dated 04.07.2009 for Rs.4,57,067.927- and cheque dated 16.07.2009 for Rs.7,45,590/- against the aforesaid demand payment were made through demand draft dated 17.08.2009 much beyond the period prescribed under the agreement. The respondent himself admitted in his reply to the show-cause notice dated 25.08.2009 that he made the aforesaid payment on 17.08.2009 which is violation of clause 55(G) of the dealership agreement. 7. Relying upon the decision of Supreme Court in the matter of Sikkim Subba Associates Vs.State of Sikkim , it was argued that in the facts of the present case, doctrine of waiver was not applicable against the appellant in view of the conduct of the respondent/ petitioner who made successive defaults in honouring his promise in making payment towards supplies made to him. 8. On the other hand, Shri Sanjay K. Agrawal, learned counsel for respondent No.1 would argue that entire amount along with interest was paid through demand draft even before issuance of show-cause notice for termination of the dealership. The appellant continued to supply the products even after.dishonouring of the cheques for long time whereas clause 55(G) of the agreement clearly provides that if the dealer for any reason makes default to make full payment for his outstanding dues as appearing in the Corporation books of account beyond four days of the demand of the Corporation, the Corporation shall be at liberty to terminate his contract. The appellant did not \ ^terminate the contract as per clasue-55(G) and principles of waiver (2001) 5 Supreme Court Cases 629 \^ "WSI • ff ^ ^.^" ^ "^te^^"' would be applicable in the facts of the present case. There is no notice of demand calling upon the respondent to make good the payment within four days and show-cause notice was given after deposit of the entire amount and the same does not disclose that there was any breach of contract. 9. We have heard learned counsel for the parties. 10.The letter of intent for appointment of dealer was issued vide Annexure-P/2 dated 21 June, 2004 and thereafter dealership agreement (Annexure-P/3) was entered into between the parties on 24th February, 2005. 11.lndisputably, the appellant exercising its discretion extended cheque facility to the respondent No.l/dealer instead of payment in cash or demand draft against the supplies. Respondent No.1 was served with a memo dated 1 August, 2009 (Annexure-P/5) communicating dishonour of cheques drawn by him (12 in number) for a total amount of Rs.57,02,712.49/- between May, 2009 and July, 2009. The communication also detailed payments through demand draft of Rs.30,69,678.55/- in the month of July, 2009. The dealer was called upon to pay balance amount, to ensure that the cheques drawn between 27th July, 2009 and 29th July, 2009 are cleared, to explain the reason for dishonour of the above cheques. He was further called upon to submit his explanation for gross financial irregularity. 12. He was served with another memo dated 7 August, 2009 (Annexure- P/6) received on 11th August, 2009 by the respondent mentioning the details of dishonoured cheques during August and September, 2008 and details of payments received through draft on 5 August, 2009. ^^s^ MvT) He was specifically apprised that the payment against cheque dated 4-7-2009 for a sum of Rs.4,57,067.92/- has not been received. The amount of Rs.4,66,134.65/- received through DD was adjusted towards interest for all the dishonoured cheques and the respondent was advised to pay Rs. 15,58,498.92/- towards principal amount and Rs.30,000/- towards balance of interest for the dishonoured cheque. The dealer was called upon to explain the reasons for giving outstation cheques contrary to the payment. 13.The respondent replied to the above communications vide Annexure- P/7 dated 25-8-2009 detailing the specific dates on which returned chequeswereissued and payments were made through demand draft against returned cheques including payments made towards interest of Rs.5,98,742.65/-. It was further explained that his father was suffering from some ailment and who later on passed away, therefore, there was lapses in payment. It was further explained that dealer is a registered medical practitioner and the problem occurred on account of mishandling of situation by the staff. After receiving the above reply, show cause notice dated 25th August, 2009 (received on 27th August, 2009) was issued to the respondent mentioning therein that the supply has already been suspended with effect from 30 July, 2009 on account offinancial irregularity and he was called upon to show cause within 7 days as to why action as contemplated in clause- 10,11,12, 42, 43, 55(g) and 55(k) ofthe dealership agreement be not taken (Annexure-P/8). In reply to the show cause notice, the earlier reasons for the above irregularities were reiterated and it was .^y:3% v^ A mentioned that the entire outstanding payment with interest has been made. 14.Finding in the impugned order is - though the petitioner has failed in honouring the cheques issued by him to the appellant for supplies made to him, however, subsequent to receipt of notice dated 1st August, 2009 the entire amount i.e. the principal sum with interest, as demanded, was paid before 25 August, 2009. In the show cause notice, except mentioning the clauses, no details with regard to specific breaches under other clauses have been mentioned and as such, there was no opportunity available to the petitioner to respond to the same. For terminating the contract under clause 55(G) a demand is to be made and on failure of making payment within 4 days from the date of demand, the Corporation may terminate the agreement. The respondents/appellants herein have not taken any steps till all the payments have been made and as such, it cannot be held that the officers of the respondents/appellants herein have exercised their power under the provisions of the agreement in accordance with its letter and spirit and the order appears to be arbitrary and ynreasonable. It has been further held that the Court has jurisdiction to entertain the petition notwithstanding provision for reference of dispute to the Arbitrator under clause-66 of the agreement and it is open to the Court to examine the arbitrariness in the action of the appellant/Corporation. The Corporation did not proceed against the petitioner immediately after his failure to make payment after notice of demand and as such, the Corporation has failed to exercise its powers in accordance with the provisions of clause-55(G) or (K) of the n ^ ""^^^ .^ \.%J./ ^^ ^^ "s^^ dealership agreement and the same constitutes waiver and acquiescence. 15.There is no dispute that the cheques issued by respondent No.1 were dishonoured on various occasions as detailed in memos of Annexure- P/5 & P/6 and payments were made by respondent No.1 through demand draft. By demand notice of Annexure-P/5, respondent No.1 was apprised about dishonouring ofcheque No.421006 dated 4 July, 2009 for a sum of Rs.4,57,067.92/-. The above demand notice was received by respondent No.1 on 5 August, 2009. The demand was again made vide Annexure-P/6 dated 7th August, 2009 against the payment of aforesaid cheque and the demand notice was received by respondent No.1 on 11th August, 2009. From reply dated 25th August, 2009 (Annexure-P/7), it is evident that respondent No.1 made payment towards aforesaid cheque vide demand draft No.739889 dated 17th August, 2009 for a consideration of Rs.4,57,068/-. 16.Clause-55 of the agreement empowers the Corporation "to terminate this agreement forthwith upon or at any time after the happening of' any of the eventualities detailed from clause 55 (A) to 55 (L) of the agreement. Clause-55 (G) & (K) reads as under:- "(G) If the dealer shall for any reason make default in payment to the corporation in full or his outstanding as appearing in corporation books of account beyond 4 days of demand by the corporation. (K) Ifthe 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 Chief/Senior Regional Manager/Regional Manager of the Corporation for the time being in whose decision shall be final, is prejudicial €^ ^i i - I 0 'K^S^ J ^ '^^^ M^ ^ ••^:^ ~'":-^-&^i.^-~-"' to the interest or good name of the corporation or its products the Chief/Senior Regional Manager/Regional Manager shall not be bound to give reason for such decision." 17.From documents filed by respondent No.l/petitioner, it is clear that specific demand was made by the appellant firstly on 1st August, 2009 and thereafter on 7 August, 2009 for payment against dishonoured cheque dated 4-7-2009. The notice of Annexure-P/6 was received by respondent No.1 on 11 August, 2009 whereas, from documentof Annexure-P/7, it is clear that payment against the aforesaid cheque was made by respondent No.1 only on 17 August, 2009. 18.The contention of learnedcounsel for respondent No.1 that amount paid by dealer was erroneously adjustedagainst payment of interest and, therefore, it was not open to the Corporation to terminate the agreement underclause 55 (G) cannot be accepted, as from their own documents, it is clear that the aforesaid dispute was neither raised by thedealer in its reply to the show cause notice nor the same was agitated before learned Single Judge. On the contrary, the respondent paid the amount towards interest by accepting his liability. 19.The question forour consideration is - whether conduct of the officers of the appellanVCorporation was arbitrary and unreasonable or whether the Corporation by not taking any step immediately after failure by the dealer in making payment within 4 days of demand and accepting the payment with interest later on acquiesced and waived their right under the agreement? 3E p ^ 10 20.1n the matter of Hindustan Petroleum Corporation Limited and others Vs. Super Highway Services and another, the Hon'ble Supreme Court, considering that there was no admissible evidence to prove service of notice on the respondent regarding test so that the dealer could be present at the time when the test is conducted, held that principles of natural justice have not been followed and termination was held to be illegal. However, the facts of the present case are distinguishable, as in the instant case, the respondent failed to pay against the supplies made to him within 4 days of demand. 21-lndisputably, respondent No.1 made numerous defaults and irregularities in making payment towards supplies as would be evident from dishonouring of cheques issued by respondent No.1 towards payment of supplies made by the appellant. The officers instead of terminating the agreement in the event of first default allowed time to respondent No.1 to regularize the payment by issuing specific notice of demand in this regard, as would be evident from Annexure-P/5 & P/6. Even after issuance of specific demand for payment against cheque dated 4-7-2009 firstly on 1st August, 2009 and thereafter on 7th August, 2009, the payment has been made admittedly on 17 August, 2009 i.e. much beyond the period of 4 days as provided under clause 55(G) of the agreement. In these circumstances, the action of officers of the appellant Corporation cannot be termed to be arbitrary and unreasonable. 22.From perusal of demand notice of Annexure-P/5 & P/6 and the dealer's reply of Annexure-P/7, it is clear that respondent No.1 was (2010) 3 Supreme Court Cases 321 11 )r6 aware about the defaults committed by him and he admitted the same. 23. Now, the question is - whether not taking action immediately after failure of respondent No.1 in making payment within stipulated period under the agreement and accepting the payment later on constitutes acquiescence and waiver? 24. From bare reading of clause 55 (G) and 55 (K), it is abundantly clear that the Corporation can terminate the agreement forthwith upon or at any time after the dealer makes default in payment to the Corporation in full or his outstanding as appearing in the Corporation books of account beyond 4 days of demand by the Corporation. There is no requirement under the agreement that the aforesaid action is to be taken immediately after the failure. 25. In the matter of Sikkim Subba Associates (Supra), while considering J^ the question of waiver and acquiescence, the Hon'bte Supreme Court held thus:- "Waiver involves a conscious, voluntary and intentional re'/?-!quishment or abandonment of a known, existing legal right, advantage, benefit, claim or privilege, which except for such a waiver, the party would have enjoyed. The agreement between the parties in this case is such that its fulfillment depends upon the mutual performance of reciprocal promises constituting the consideration for one another and the reciprocity envisaged and engrafted is such that one party who fails to perform his own reciprocal promise cannot assert a claim for performance of the other party and go to the extent of claiming even damages for non-performance by the other party. He who seeks equity must do equity and when the condonation or acceptance of belated performance was conditional upon the future good conduct and adherence to the promises of the defaulter, the so-called waiver cannot be considered to be forever and complete in itsetf so as to deprive the State, in this case, of its power to legitimately repudiate and refuse to 12 Pb perform its part on the admitted fact that the default of the appellants continued till even the passing of the award in this case. So far as the defaults and consequent entitlement or right of the State to have had the lotteries either foreclosed or stopped further, the State in order to safeguard its own stakes and reputation has continued the operation of lotteries even undergoing the miseries arising out of the persistent defaults of the appellants. Thesame cannot be availed of by the appellants or used as a ground by the arbitrator to claimany immunity permanently for being pardoned, condoned and waived of their subsequent recurring and persistent defaults so as to deny or denude forever the power of the State as the other party to the contract to put an end to the agreement and thereby relieve themselves of the misfortunes they were made t6 suffer due to such defaults. Once the appellants failed to deposit the price money in advance within the stipulated time, the time being of the essence since the prizes announced after the draw have to be paid from out of only the prize money deposited, the State was well within its rights to repudiate not only due to continuing wrongs or defaults but taking into account the past conduct and violations also despite the fact that those draws have been completed by declaration or disbursement of prize amounts by the State from out of its own funds. The conclusion to the contrary that the State has committed breach of the contract is nothing but sheer perversity and contradiction in terms." 26.1n the instant case, after respondent No.1 committed numerous defaults in making payments and cheques drawn by him against payments towards supplies bounced, the supplies were suspended w.e.f. 30-7-2009. Since respondent No.1 failed to deposit its outstanding dues even after 4 days from the date of demand and deposited the same with interest subsequently, respondent No.1 cannot be permitted to contend that by accepting the payment with interest later on even before issuance of show cause notice, the appellanVCorporation has condoned the default and doctrine of acquiescence and waiver would be applicable. If the Corporation in order to safeguard its own interest i.e. recovery of outstanding balance against the respondent delayed the proceeding for f^ 13 Barve termination of dealership, the same would not constitute waiver and acquiescence and the same cannot be availed by respondent or used as a ground for claiming waiver. 27.0n the basis of aforesaid discussion, we are of the opinion that termination of dealership agreement of respondent No.1 vide Annexure-P/1 dated 21 December, 2009 was strictly in accordance with the provisions of the agreement and the same was done in exercise of powers conferred under clause 55(G) of the dealership agreement. 28.1n the result, the writ appeal is allowed. The impugned order dated 14th September, 2010 passed by learned Single Judge in Writ Petition (C) No.7518 of 2009 is hereby set aside and consequently, the writ petition is dismissed. Sd/- Dhirendra Mishar Judge Sd/- R.N. Chandrakar Judge