IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :19.03.2010 CORAM: THE HONOURABLE MR.JUSTICE P.JYOTHIMANI Writ Petition No.24661 of 2008 and M.P.Nos.1 and 2 of 2008 M/s.Saran Agency, Rep by its Proprietor, A.Senthil Kumar, East Coast Road, Periyakallapet, Pondichery ... Petitioner Vs. 1.Hindustan Petroleum Corporation Ltd., Rep by Senior Regional Manager, No.8, Gandhi Irwin Road, Egmore, Chennai 8. 2.The Field Officer, Rep by Senior Regional Manager, No.8, Gandhi Irwin Road, Egmore, Chennai 8. 3.The Area Sales Manager, Rep by Senior Regional Manager, No.8, Gandhi Irwin Road, Egmore, Chennai 8. ... Respondents PRAYER: Petition filed under Article 226 of the Constitution of India for the issuance of a Writ of Certioarified Mandamus, calling for the records of the first respondent herein in Ref:CHRO/CPV/RET, dated 10.10.2008 relating to petitioner's retail outlet M/s.Saran Agency, East Coast Road, Periyakallapet, Pondichery, quash the same and direct the respondents herein to continue the supplies of petroleum products to the petitioner's retail outlet M/s.Saran Agency, East Coast Road, Periyakallapet, Pondichery. For Petitioner : Mr.AR.L.Sundaresan, Senior Counsel. for M/s. A.L.Gandhimathi For Respondents : Mr.O.R.Santhanakrishnan https://hcservices.ecourts.gov.in/hcservices/ O R D E R Heard the learned counsel for the petitioner and the learned counsel for the respondents. 2.The writ petition is directed against the order of the first respondent, dated 10.10.2008 by which the first respondent has terminated the dealership agreement entered into between the Hindustan Petroleum Corporation Ltd., and the petitioner, M/s.Saran Agency, on 01.10.2004. 3.The facts leading to the passing of the impugned order are as follows: a)The petitioner is a lease-holder of the land in survey number in R.S.No.170/1A, 170/2, 170/3, Kalapet Village, Oulgaret, Pondicherry. The petitioner has applied to the first respondent for dealership in petroleum products and the petitioner was selected and a lease agreement in respect of the land was executed in favour of the first respondent under a registered deed, dated 07.02.2005 for a period of 30 years. The rent was fixed at Rs.6,000/- per month. The dealership was awarded on 01.10.2004 in respect of the supply of petroleum products made by the respondents to be sold by the petitioner in retail outlet. b)It is stated that on 14.05.2008, there was an inspection in the retail outlet of the petitioner and the Sales Officer of the respondent Corporation has inspected to ascertain as to whether, there is any stock variation within permissible limit. On finding that the stock variation in power and turbojet was beyond permissible limit and a report was stated to have been given by the Sales Officer and the outlet pumps of power and turbojet were sealed and sales was stopped in the above two nozzles. Thereafter, notice was sent to the petitioner on 31.05.2008 by the first respondent stating as if inspection was conducted on 04.05.2008 which was factually wrong and in the notice it was stated that in respect of power and turbojet the stock variation were beyond permissible limits, L&T, MS Nozzle was delivering 30ml short and L&T HSD Nozzle delivering 30ml excess, and while the sales from the above nozzles were suspended, 999 litres of power was pumped through nozzle in a single transaction. c)The petitioner has replied to the said notice on 11.06.2008 stating that the load was received on 05.05.2008, there was a shortage of 189 litres and the same was reported to the first respondent and that has also been included in the variation, otherwise the variation should be treated as within permissible limit. In respect of turbojet also it is informed that while the load was received on 10.05.2008, there was a shortage of 239 litres and that has not been included in addition to 105 litres as testing. https://hcservices.ecourts.gov.in/hcservices/ d)It is also stated that since the retail outlet is in the border of Tamil Nadu, sale was also effected by can as well as barrel. Therefore, the continuous pumping of 999 litres through nozzle in a single transaction is possible. However, the said charge was also denied. By referring to the Marketing Discipline Guidelines, it was replied by the petitioner that there was a permissible variation. e)It is stated that after the explanation submitted there was no action, even though the supply was suspended to the petitioner. Therefore, the petitioner has approached this Court by filing W.P.No.14983 of 2008 for a direction to resume supply of Power, Turbojet, MS and HSD fuels to the petitioner. Considering the argument of both the parties, this Court by an order, dated 04.09.2008, disposed of the writ petition giving liberty to the respondents to pass final orders pursuant to the show cause notice, by considering the explanation offered by the petitioner, dated 11.06.2008. By a letter dated 30.09.2008, the first respondent stating it as a fact finding letter directed the petitioner to appear for hearing on 24.09.2008, on which day, the petitioner has reiterated the earlier reply, dated 11.06.2008 and 26.08.2008. f)It is stated that in terms of the order of this Court, dated 04.09.2008, when the sales officer one Thiru.Kirubanandam has visited the retail outlet for resuming the sale, it was found that there was positive stock variation to the extent of 1446 litres in power, 106 litres in HSD and 300 litres in turbojet and there was density variation in power to the extent of 3.4 between the density recorded on 14.05.2008 and the density observed at the time of inspection on 26.09.2008, even after the suspension of the supply. On such finding, the sale was not resumed and the samples were drawn and sent to the lab for testing. g)It is stated that for the letter, dated 30.09.2008, the petitioner was not able to reply since the writ petition was pending before this Court as stated above. The first respondent filed an affidavit on 29.09.2008 alleging that certain stock variation and density variation. Based on that affidavit, the matter was posted again for being mentioned before this Court and adjourned for filing counter affidavit to the said affidavit by the petitioner. It was in those circumstances, reply could not be given to the letter of the first respondent, dated 30.09.2008. In the mean time, the first respondent has served the impugned final order, dated 10.10.2008 terminating the dealership agreement, dated 01.10.2004 stating that the petitioner has not stated anything new and also stating that the petitioner is free to invoke the clause under dealership agreement for arbitration. https://hcservices.ecourts.gov.in/hcservices/ 4.The said impugned order is challenged on various grounds including that it is arbitrary, illegal and perverse; that the order has been passed without substantial evidence and therefore, the examination of parties are only an empty formality and in effect is in violation of the principles of natural justice; that even though it is a long order, the impugned order is passed on non application of mind; that the order is mala fide; that the non giving of reply was due to the pendency of the case which was reopened only at the instance of the first respondent, that the allegation of variation is false and perverse and the same is a permissible variation, if it is taken in its proper perspective and so on. 5.The first respondent has filed counter affidavit on behalf of the respondent Corporation. A preliminary objection was raised on the ground that the agreement, dated 01.10.2004 has contained a clause for arbitration and in view of the arbitration clause, the writ petition is not maintainable. The further objection is raised about the maintainability of the writ petition that the contractual obligations under the agreement is said to be enforced in the writ petition. On the merit, it is also stated that sales officer of the respondent Corporation has inspected on 04.05.2008 and found that stock variation in power and turbojet were beyond permissible limits and was delivering 30ml short and L&T HSD Nozzle delivering 30ml excess and it was immediately, thereafter, the supplies were suspended. ii)It is further stated that on a close review of the sales from January 2008 it was found various violations that nozzle sales of High Speed Diesel ranges from 1200 to 2000 litres per day and that of Motor Spirit, it is 428 especially during midnights High Speed Diesel ranging from 4000 to 8000 litres and about 4000 litres in case of Motor Spirit have been pumped through nozzles. iii)It was found that 999 litres of power was pumped through nozzle in a single transaction; that the daily sales recorded in DSR is highly incongruous with the daily sales as per automation data source and the abnormal high sale volumes on specific days does not commensurate with the daily average sales and the petitioner was not capturing the vehicle numbers of all the vehicles in automated system as advised. iv)It is due to the reason that there are violations and irregularities in respect of stock variation, as per the dealership agreement, proceedings were initiated. Immediately, after giving explanation to the show cause notice, the dealer has approached this Court by filing writ petition for a direction to resume supply of power. It was in the writ petition on 04.09.2008, the Corporation was directed to pass final orders on the show cause notice issued, considering the explanation directing the supply of petroleum products to the dealer. It was thereafter, a personal enquiry was https://hcservices.ecourts.gov.in/hcservices/ conducted calling upon Mr.A.Senthil Kumar, Proprietor of the petitioner, to be present in person, on 24.09.2008 with his explanation to the show cause notice, dated 11.08.2008 and also produce documents. v)It is stated that on 24.09.2008, the said person along with his Manager T.Babu appeared at 11 a.m. and he has explained in detail the contents of his letters dated 11.08.2008 and 26.08.2008 and a detailed enquiry was held on the said date in which the said Mr.A.Senthil Kumar has signed the proceedings. It was pursuant to the order of the Court, dated 04.09.2008, directing the Corporation to supply petroleum products, the Sales officer, Sri.D.Kirubanandam went to the retail outlet of the petitioner on 26.09.2008 and on inspection irregularities were again found especially, there was density variation in power between the density recorded on 14.05.2008 and as observed at the time of inspection on 26.09.2008 and there was also positive stock variation of motor spirit, such variation was found inspite of non supply from the Corporation and therefore, the Corporation was unable to resume supply and it was in those circumstances, the matter was brought to the notice of this Court in the above said writ petition 'for being mentioned' on 30.09.2008 and the matter was subsequently adjourned to 15.10.2008 at the request of the learned counsel for the petitioner. The letter of termination was sent by registered post on 10.10.2008, which was given effect from 11.10.2008 and based on the Panchanama prepared possession of the retail outlet was taken over by the first respondent Corporation has resumed sale by itself. The said writ petition was closed since in the mean time, the termination order has been passed. While it is admitted that lease was for a period of 30 years commencing from 07.02.2005 on a monthly rental of Rs.6,000/- and renewal thereafter, it is stated that the dealership agreement is different from land lease agreement. It is stated that the conduct of the petitioner has been not in accordance with the contract for which many warning letters were issued by the Corporation. vi)It is stated that while the inspection was carried out on 14.05.2008 by the Sales Officer by mistake it was stated as 04.05.2008 in one of the communication which is a clerical error. It is stated that as a dealer, the petitioner is aware that the shortage is to be recorded in the daily sales register and said record was not made, thereby no mistake committed by the sales officer in including addition of 57 litres as testing. The testing was done as per the Marketing Discipline Guidelines. It is stated that no shortage was booked in the daily sales record and no variations were seen at the end of the same day as well as specific days in daily sale record despite excess delivery. Again it is denied that in respect of turbojet, there was a mistake committed by the sales officer that he did not include an addition of 105 litres as a testing. In respect of the statement of the petitioner that the bunk situated at the Pondicherry border and therefore, the sale could be effected by cans https://hcservices.ecourts.gov.in/hcservices/ because of the price difference between the two States and according to the respondents, the same is liable for prosecution since it is against the Petroleum Rules and the Motor Spirit and High Speed Diesel Control Order, 2005. It is further stated that it was only after opportunity having been given by issuing show cause notice and considering the explanation of the petitioner, the impugned order came to be passed and it was only the petitioner who has rushed to this Court by filing W.P.No.14983 of 2008 even before the explanation could be considered by the first respondent and non resumption of supply was due to the fault committed again by the petitioner during the time when there was no supply and the stock density were observed to be contrary and therefore, resumption of sale was not possible. It is also stated that there is no personal animosity with the petitioner and it was only because of the violation of the provisions of the licence, the impugned order came to be passed after giving due opportunity to the petitioner and following the guidelines. It is also denied that the termination order is arbitrary or illegal and there is absolutely no violation of principles of natural justice in this case and only after enquiry the order came to be passed. It is only stated that there is no necessity to furnish any of the documents and no opportunity need to be given to cross examine any of the witnesses and if such requirement is made by the petitioner, remedy is available to the petitioner by invoking arbitration clause under the dealership agreement and there was no proper explanation given by the petitioner to the gross violations against the guidelines. It is also denied that there is mala fide on the part of the respondent Corporation towards the petitioner. It is stated that the petitioner having committed gross violation of the conditions of licence is attempting to justify the same by making various allegations in this writ petition. 6.Mr.AR.L.Sundaresan, learned Senior Counsel appearing for the petitioner would submit that when gross allegation has been made against the petitioner which cannot be in normal circumstance accepted especially when the supply was stopped thereby it was found that there was a variation in density which may be due to the reason of long gap, it is the duty on the part of the first respondent to conduct proper enquiry and without any evidence, the termination order came to be passed. It is his further submission that even though there is an arbitration clause available, there is a gross violation of the principles of natural justice. On the part of the first respondent which is a governmental organisation and therefore, the first respondent cannot wriggle out saying that the writ petition is not maintainable. He would further submit that even in matters of contract, if there is a gross violation of principles of natural justice, the writ petition is maintainable. 7.He would rely upon the judgment reported in 2003 (1) CTC 189 (Harbanslal Sahnia and another Vs. Indian Oil Corporation Ltd., and others). He would also rely upon the judgment of the Division Bench https://hcservices.ecourts.gov.in/hcservices/ of this Court in W.A.No.344 of 2008 and contend that the writ petition even in contractual matters are permissible. In this regard, he would also rely upon the following judgments of the Hon'ble Supreme Court as well as this Court: “i)In Aluminium Industries Ltd., Madras, rep by its Commercial Manager Laboi, Madras-18 Vs. Minerals & Metals Trading Corporation of India Ltd., 7 Chennai House, Esplanade, Madras-1, rep by its Zonal Manager and 2 others reported in 1997 (II) CTC 636 ii)In Popcorn Entertainment and another Vs. City Industrial Development Corporation and another reported in 2007 (6) SCJ 947 iii)In Geetha Kasturirangan and another Vs. Hindustan Petroleum Corporation Ltd., reported in 2008(8) MLJ 971 iv) In M/s.Dhampur Sugar Mills Ltd., V. State of U.P. and Ors. reported in AIR 2007 SCW 2007 6072” 8.On merit also, the learned Senior Counsel has submitted that there is a contradiction in the fact finding letters which were given on assumption, failing to take note that it is during night time sales are more. It is his contention that the respondent Corporation has failed to take note of the fact about the traffic position in considering the quantum of sale. There was no finding in stock testing which has been forwarded to the petitioner and it is his submission that as per the guidelines there was permissible limit and therefore, the finding is perverse. 9.It is the further submission of Mr.AR.L.Sundaresan, the learned Senior Counsel that the facts of each case are different and to substantiate his contention that the filing of writ petition under Article 226 of the Constitution of India is not a bar, he also relied on the judgments of the Hon'ble Supreme Court as well as this Court: “i)In Agri Gold Exims Ltd., Vs. Sri Lakshmi Knits & Wovens and others reported in 2007 (3) SCC 686 ii)In State of NCT of Delhi and another Vs. Sanjeev Alias Bittoo reported in 2005 (5) SCC 181 iii)In Sanjana M.Wig(Ms) Vs. Hindustan Petroleum Corporation Ltd., reported in 2005(8) SCC 242 iv)In Noble Resources Ltd., Vs. State of Orissa and another reported in 2006(10) SCC 236 v)In Pimpri Chinchwad Municipal Corporation and others Vs. Gayatri Construction Company and another reported in 2008 (8) SCC 172 vi)In Swapan Kumar Pal Vs. Achintya Kumar Nayak and others reported in 2008(2) MLJ 569 (SC) vii)In M/s.Bisra Stone Lime Company Ltd., and another Vs. Orissa State Electricity Board and another reported in 1976 (2) SCC 167 viii)In Kurshad Sharfudeen and another Vs. IBP Company Ltd., and others reported in 2009 (5) MLJ 1315”. https://hcservices.ecourts.gov.in/hcservices/ 10.On the other hand, it is the submission of Mr.O.R.Santhanakrishnan, the learned counsel appearing for the respondent Corporation that the entire enquiry has been conducted as per the terms of dealership agreement/lease. To substantiate his contention that in case of arbitration agreement, the writ petition is not maintainable, he would also rely upon the following judgments of the Hon'ble Supreme Court as well as this Court. “i)In Kurshad Sharfudeen and another Vs. IBP Company Ltd., and others reported in 2009 (5) MLJ 1315. ii)In Harbanslal Sahnia and another Vs. Indian Oil Corporation Ltd., and others reported in 2003 (1) CTC 189. iii)In Titagarh Paper Mills Vs. Orissa State Electricity Board reported in 1975 (2) SCC 436 iv)In M/s.Bisra Stone Lime Company Ltd., and another Vs. Orissa State Electricity Board and another reported in 1976 (2) SCC 167 v)In Smt.Rukmanibai Gupta Vs. Collector, Jabalpur and others reported in 1980(4) SCC 556 vi)In Agri Gold Exims Ltd., Vs. Sri Lakshmi Knits & Wovens and others reported in 2007 (3) SCC 686. vii)In Kalpana Kothari Vs. Sudha Yadav and others reported in 2002(1) SCC 203. viii)In Hindustan Petroleum Corporation Ltd., Vs. Pinkcity Midway Petroleums reported in 2003(6) SCC 503. ix)In Noble Resources Ltd., Vs. State of Orissa and another reported in 2006(10) SCC 236. x)In CDC Financial Services (Mauritius) Ltd., Vs. BPL Communications Ltd. and others reported in 2003 (12) SCC 140. xi)In Pimpri Chinchwad Municipal Corporation and others Vs. Gayatri Construction Company and another reported in 2008 (8) SCC 172. xii)In State of U.P Vs. Bridge & Roof Co.(India) Ltd., reported in AIR 1996 SC 3515 xiii)In S.A.Abdul Rasheed Vs. Tamil Nadu Housing Board rep. by its Managing Director, Chennai and another reported in 2008 (5) MLJ 1496 xiv)Unreported judgment of this Court in Indian Oil Corporation and another Vs.M/s.Kamala Filling Station, Chennai and others in W.A.No.2868 of 2003, dated 26.03.2007. xv)Unreported judgment of this Court in Bharat Petroleum Corporation Ltd and another Vs.Sree Venkateswara Service Station in O.S.A.Nos.67 and 68 of 2001 and 132 to 136 of 2003, dated 11.12.2007”. 11.It is also his submission that judicial review in respect of contractual matters are very limited. Even assuming that there is https://hcservices.ecourts.gov.in/hcservices/ irregularity, the same cannot be decided by this Court under Article 226 of the Constitution of India. 12.He would rely upon the following judgments of the Hon'ble Supreme Court as well as this Court: “i)In State of NCT of Delhi and another Vs. Sanjeev Alias Bittoo reported in 2005 (5) SCC 181 ii)In Swapan Kumar Pal Vs. Achintya Kumar Nayak and others reported in 2008(2) MLJ 569 (SC) iii)In Sanjana M.Wig(Ms) Vs. Hindustan Petroleum Corporation Ltd., reported in 2005(8) SCC 242 iv)In R.K.Koteeswaran, M/s.Padmavathy Constructions, Tiruvellore Vs. General Manager, Southern Railway, Chennai reported in 1997(1) CTC 609 v)In S.Sitaraman Vs. Hindustan Petroleum Corporation Ltd., and another reported in 2000(1) MLJ 769 vi)In K.Vinod Kumar Vs.S.Palanisamy and others reported in 2003 (10) SCC 681. vii)In E.Venkatakrishna Vs.Indian Oil Corporation and another reported in 2000(7) SCC 764”. 13.I have considered the submissions made by the learned Senior Counsel and the learned counsel for the respondents and perused the entire materials available on record and also given my anxious thought to the issue involved in this case. 14.The main point on which the said writ petition is filed against the order of the first respondent in cancelling the dealership agreement, dated 01.10.2004 is the violation of the principles of natural justice. Even though the impugned order explains in detail, the case of the petitioner is that inasmuch as the relevant issue has not been discussed, it should be taken as an order passed with non application of mind. 15.Before going into the rival submissions made by the respective counsels it is necessary to refer to some of the Clauses of the dealership agreement, dated 01.10.2004 which has been terminated by the first respondent under the impugned order. It is the case of the petitioner that the petitioner itself is a lease holder in respect of the land and as a lease holder, the petitioner entered into an agreement with the first respondent which is for the purpose of making the petitioner as a dealer for the retail sale or supply at the said premises of petrol/Diesel/motor oils/greases and such other products. Therefore, we are concerned in this writ petition about the dealership agreement and the period of dealership agreement is 15 years. As per the terms of the agreement, the site has to be maintained by the dealer at his own expenses apart from the equipments prescribed in the schedule and the corporation should supply such quantities of the products as may be considered expedient to meet the current trade demands and it is the duty of the dealer to https://hcservices.ecourts.gov.in/hcservices/ maintain stocks as the Corporation may consider adequate. The sale target is also mentioned in Clause 9 of the said agreement. There are various conditions stipulated against the dealer in respect of the sale of the petroleum products supplied by the Corporation with the power of the Corporation to inspect the retail outlet at any point of time and that the dealer has to keep and maintain records of sale etc., 16.Clause 55 of the contract empowers the Corporation to terminate the agreement on any one of the grounds which includes the breach of any of the covenants and stipulations contained in the agreement, the death or adjudication as insolvent of the dealer or on dissolution of partnership or liquidation of the company to which the dealership was given, when default made in payment to the Corporation, if the dealer fails to adhere the instructions issued from time to time and if there is contamination or tampering of the quality of the products supplied by the corporation etc. 17.Clause 66 of the said agreement which provides for settlement of dispute by arbitration stands as follows: “66.Any dispute or difference of any nature