Case: INDIAN OIL CORPORATION Vs. M/S. R.M. SERVICE CENTRE

2. The dealer was granted retail dealership for sale of motor spirit (petrol), High Speed Diesel, motor oil and grease as a physical disabled person on a depot located at Ghograpar, National Highway -31 in the District of Nalbari, Assam. The sale and supply from the retail outlet of the dealer was suspended by the appellants on 6 th May, 2013 when it was found, on the joint inspection, variation of stock of High Speed Diesel beyond permissible limit; density of T ank No. 2 was not available and that tanker truck retention of the corresponding tank was not available at the time of inspection. The appellant had drawn three samples from T ank No. 2. One sample was sent for testing, another sample was retained by the Field Survey Officer and the third sample was handed over to the dealer. A show cause notice was issued to the dealer on 6 th May, 2013, alleging violation of Clauses 5.1.9 and 5.1.11 of the Guidelines. The dealer submitted his explanation on 21 st May, 2013, inter alia, stating that dispensing unit was not working properly and, therefore, wrong readings were shown3. The dealer was informed on 27 th June, 2013 that test report of High-Speed Diesel samples drawn from the tank on 6 th May, 2013 had been received. The report was that the samples failed to meet the specifications. Thereafter, in response to a show cause notice dated 27 th June, 2013 to explain the non-conformities detected, the dealer vide letter dated 17 th July, 2013 requested to seek retesting of the umpire sample which was drawn on the same day, sealed, and certified by the appellants. The stand of the dealer was that the dispensing unit was 20 years old and due to lack of maintenance on account of the road-widening project, the totalizer had been showing wrong readings4. The request of the dealer for retest was accepted on 6 th August, 2013. The retest was carried out in the Laboratory of the appellants on two sets of samples including the one retained by the Field Survey Officer of the appellants. The report of the aforesaid two sets of samples was issued on 19 th August, 2013. The report of the sample which was retained by Field Survey Officer of the appellants was that it did not meet the BIS III specifications whereas, the sample of the dealer was not fit for testing due to presence of sludge5. On the basis of the test reports dated 29 th May, 2013 and 19 th August, 2013, the dealership was terminated on 25 th April, 2014 after serving another show cause notice dated 10 th December, 2013 wherein, it has been stated that deviation was observed during inspection pertaining to stock variation and non-availability of reference density. The appellants have mentioned details of non-conformity and the violation of the Clauses in the letter of termination dated 25 th April, 2014,6. It was also pointed out that out of three samples drawn from T ank No. 2 on 6 th May, 2013, one sample was sent to the Laboratory, another was retained by the Field Survey Officer and the third sample was handed over to the dealer7. In view of the above, the following violations were detected and the penal action was taken:In view of the above the cumulative MDG violations detected and established in the Retail Outlet are as follows:a. Stock variation beyond permissible limit (Violation of MDG-2012 Clause no. 5.1.11)b. Nozzle Sample failure of HSD. (Violation of MDG 2012 Clause no. 5.1.1)c. Non availability of reference density (Violation of MDG- 2012 Clause no. 5.1.9)d. Non availability of TT retention sample (Violation of MDG-2012 Chapter 5 notes-i)The penal action for the irregularity mentioned in point no (a) & (b) is termination in the first instance as per Clause no 8.2 of MDG-2012. The penal action for the irregularity mentioned in point no (c) & (d) is Warning cum Guidance letter in the first instance as per Clause no 8.4 of MDG- 2012The above stated irregularities are also in violation of the provisions made under clause no. 27 and clause no. 40 of the dealership agreement executed by and between you and the corporation on 20.12.19958. The dealer challenged the termination of the dealership before the Gauhati High Court. The learned Single Judge allowed the writ petition on 13 th October, 2015 holding that as per the Guidelines, the samples were required to reach the Laboratory preferably within ten days whereas, the first sample was tested on 29 th May, 2013 that is after ten days and the umpire sample given to the dealer was tested on 19 th August, 2013. It was held that there is non-compliance of the time line fixed. The learned Single Judge held as under:27. Turning to the provisions under Clause 2.4.4 Notes (2), Clause 2.5 and Clause 2.10 of the Guidelines, the time-limits prescribed for sending the samples to the laboratory from the date of collection as well as the time within which the sample should be tested from the date when it reached the laboratory, are provisions that requires strict adherence. If a contrary view is adopted to allow the respondent Corporation to take as much time at its discretion for sending the sample to the laboratory and thereafter to get it tested, the said provisions prescribing time-limits would be rendered otiose and redundant. On that account, the time-limits ought not to have been prescribed/mentioned in the said Clauses in the first place. Surely, this cannot be the intention of IOCL being full well aware that time gap between the sample taken and laboratory test is essentially to be maintained so as to avert any variations in the density test of the sample so collected. The argument of Mr. MK Choudhury that the word preferably occurring in the said clauses cannot be construed as mandatory, this Court rejects the said contention and holds that the adherence of the time-limits prescribed under the Guidelines is directly proportionate to the ultimate decision that would be reached. The time- limits and adherence thereof is a contractual obligation that has to be discharged by the Oil Corporation in letter and spirit9. The learned Single Judge also found that the stock variation is not a critical irregularity within the meaning of Clause 8.2 of the Guidelines and cannot entail termination of dealership10. The Division Bench of the High Court, in appeal, agreed with the finding recorded by the learned Single Bench. The Court relied upon judgments of this Court in Hindustan Petroleum Corporation Limited & Ors. v. Super Highway Services & Anr.(2010) 3 SCC 321 and Bharat Petroleum Corporation Limited v. Jagannath And Company & Ors.(2013) 12 SCC. It was held by the Division Bench of the High Court that the finding recorded by the learned Single Judge is a plausible finding, therefore, does not warrant

Reasoning:
The Control Order has been issued under Section 3 of the Act. Such Act has been enacted for control of the production, supply and distribution and trade and commerce, of certain commodities. In respect of High Speed Diesel and Motor Spirit, the Control Order is issued for regulation of supply and distribution and prevention of the malpractices. Section 6A of the Act provides for confiscation of the essential commodity whereas, Section 7 of the Act makes any person who contravenes any order made under Section 3 liable for criminal prosecution. Therefore, we find that the effect of issuance of the Control Order is that in the event of violation of such Control Order, any person who contravenes any order made under Section 3 of the Act i.e. the Control Order, he is liable to be punished by a Court. Therefore, the violation of the Control Order has penal consequences leading to conviction. The provisions of search and seizure contained in Clause 7 read with Section 100 of the Code will come into play only in the event a person is sought to be prosecuted for violation of the provisions of the Control Order. Admittedly, in the present case, the dealer is not sought to be prosecuted for the violation of the Guidelines, therefore, the procedure for drawing of samples which is a necessary pre-condition under the Control Order for prosecuting an offender does not arise for consideration14. The dealer has entered into an agreement on 20 th December, 1995. It is not disputed that the dealer is bound by the Guidelines issued by the Public Sector Oil Marketing Companies. Clause 2.4.4 of the Guidelines provides for procedure for drawing of samples. Note 2 provides that the samples drawn should reach the laboratory for testing preferably within ten days of the collection of the samples . Similarly, sub-clause A of Clause 2.5 of the Guidelines provides that all samples should be suitably coded before sending them to the laboratory for testing preferably within ten days of drawing the samples. Sub-clause I of Clause 2.5 of the Guidelines is that the purpose of mentioning time frame for various activities such as sending samples to the laboratory preferably within ten days is to streamline the system and is in no way related to quality/result of the product. In view of the language of the Guidelines, the findings recorded by the High Court that the time line is to be strictly adhered to cannot be sustained15. The Guidelines as mentioned in sub-clause I of Clause 2.5 of the Guidelines is to streamline the functioning i.e. the oil companies should not arbitrarily or without any justification send the sample for testing at their sweet will. The sample in this case was drawn on 6 th May, 2013 and was sent for testing on 22 nd May, 2013 i.e. there was a delay of 5 days. Since the Guidelines use the time line as a preferred time line, it cannot be said that the time line mentioned has to be strictly adhered to and is mandatory. The language, the purport and the effect of testing do not warrant to read the word preferably as mandatory time line. It is not the case of the dealer that the sample sent after five days will lose its efficacy as the umpire sample would be sent only after the first report is confronted to the dealer. Still further, the dealer has not raised any objections regarding delay in sending the sample in the two replies submitted by him on 17 th July, 2013 and 2 nd January, 2014. The argument that the umpire sample in the hands of the dealer could not be tested because of sludge and to doubt the other two samples is totally untenable. Such argument is based upon conjectures as the other two samples collected and sealed cannot be permitted to be disputed only because one sample was found with sludge. There is no material to doubt the correctness of the samples taken16. The first test report dated 29 th May, 2013 was found deficient in the density as also in K.V. @40 degree celsius, sulphur and distillation recovery. Even the report dated 19 th August, 2013 is found to be deficient in density, K.V., distillation recovery and sulphur. The result of the second report is almost the same as the sample tested on 29 th May, 2013. Thus, the appellant has rightly terminated the dealership for adulteration of the High Speed Diesel17. There was variation in stock beyond permissible limits. In case of positive stock variation beyond permissible limits and on account of failure of sample, action in line with that of adulteration is to be initiated. The adulteration in these circumstances is a critical irregularity falling in Clause 8.2 of the Guidelines and the action required to be taken is termination of the dealership. However, in case of stock variation beyond permissible limits and the sample passing the quality test, it leads to suspension of sale and supply for fifteen days in the first instance, suspension of sale and supply for thirty days in the second instance and termination of dealership in the third instance. In this case, since the stock variation was beyond permissible limits and the sample failed, therefore, the action was rightly taken under Clause 5.1.11 of the Guidelines which is a critical irregularity when read with sub-clause (i) of Clause 8.2 and sub-clause (iv) of Clause 8.3 of the Guidelines18. The judgments referred to by the learned counsel for the dealer are not applicable to the facts of the present case as in both the cases, the action taken by the oil company was found to be in violation of the principle of natural justice as no notice was served upon the dealer but, in the present case, after failure of the first sample in the test report dated 29 th May, 2013, the dealer was informed, who opted for testing of umpire sample in his possession. The said sample along with the sample in possession of the Field Survey Officer was sent for testing and in the report dated 19 th August, 2013, the sample was found to have the same deviations as in the first sample tested on 29 th May, 2013. The dealer was informed of the result of the second test and was also given a show cause notice as to why the dealership should not be terminated. Therefore, the action taken against the dealer is in terms of the Guidelines, as a consequence of contractual obligations by the dealer.