Case: Indian Oil Corporation Ltd Vs. Niloufer Siddiqui

2. The facts which are required to appreciate the rival legal contentions urged on behalf of the parties are stated in brief hereunder:The appellant-Indian Oil Corporation Limited (for short ?IOCL?) in the year 1971 invited applications from eligible persons under the scheme for awarding the distributorship of Indane Gas (LPG) Agencies in the town of Muzaffarpur, Bihar. The said distributorship was reserved for ex-defence personnel, war-widows and dependants. The respondent no.2- Ex-Captain A.S. Siddiqui and respondent no.3-Ex-Captain Jai Narain Prasad Nishad applied for the said distributorship and got it. On 15.10.1971 IOCL offered the said distributorship to respondent nos. 2 and 3 along with a third person provided they agreed to enter into a partnership to run the business of distribution of Indane Gas. This was done with a view to rehabilitate more ex-servicemen in the country. However, the third person refused to form partnership3. The IOCL through its letter no. Sales/LPG/ERN/3623 dated 21.10.1971 (hereinafter referred to as ?letter of allotment?) allotted distributorship of Indane Gas to respondent nos.2 and 3 subject to the terms and conditions mentioned thereinCondition no.2 of the said letter is stated hereunder:?Condition no.2: This appointment is subject to the conditions contained in our standard agreement which will be sent to you in due course for your signature and you shall sign and return the same to us.?Condition no.8: Notwithstanding anything contained herein, the Corporation shall be at liberty to terminate your distributorship without assigning any reason whatsoever by giving you 30 days notice in writing of intention to do so and upon the expiry of the said notice your distributorship shall stand cancelled and terminated without prejudice to the rights of the Corporation in respect of any matter or thing antecedent to such termination.?4. On 17.11.1971 the partnership deed was signed between respondent nos.2 and 3 to carry on the business of distribution of Indane Gas at Muzzafarpur under the name and style of M/s Happy Homes (respondent no.4) on various terms and conditionsCondition no.12 of the said partnership deed reads thus:?12.No partner shall without the consent of the other partner obtained in writing for the purpose of any of the following acts:-a. Engage while he is a partner or be directly or indirectly concerned, in may business other, than that of and competing with the business of the firmXXX XXX XXXh. Assign or mortgage his share in the partnership or attempt to introduce and consider as partner…?5. The respondent no.2 through letter no.59582 dated 04.11.1971 requested the IOCL for supply of the copy of the standard agreement as referred to in condition no.2 of the letter of allotment issued by IOCL. IOCL vide letter dated 12.11.1971 had given an assurance to them to send the said agreement in due course. The respondent no.2 through letter dated 16.12.1971 again requested for a copy of the said standard agreement from IOCL. IOCL vide letter no. 3622 dated 31.12.1971 allayed apprehension of both respondent nos.2 and 3 on the score of non-availability of the said standard agreement and the termination of distributorship. The relevant part of the said letter no. 3622 reads thus:?…This agreement will be given to you in due course. There is absolutely no secrecy maintained about anything and the agreement as and when ready, would be sent to you…xx xx xxPlease in the meantime, we would like you to progress fast regarding commissioning the market…?6. From 23.03.1972 the partnership firm-M/s Happy Homes started the business of distribution of Indane Gas without the said standard agreement by both the respondent nos. 2 and 3. The distributorship continued to be regulated by the terms of the letter of allotment issued by IOCL to them7. The business of the partnership firm went on smoothly for some time. After few months differences arose between the partners i.e., respondent nos. 2 and 3 due to certain irregularities committed by respondent no.3. The interference of IOCL was sought by respondent no. 2 for the settlement of the said dispute. However, IOCL refused to interfere and asked the partners to settle their dispute themselves. On 27.02.1973 the respondent no. 2 wrote a letter to Directorate General of Resettlement, Ministry of Defence (for short ?DGR?) with a copy of the same to the Minister of Defence and the Minister of Petroleum requesting either to split the partnership business into two or to permit him to transfer his share in the partnership in the name of his wife Mrs. Niloufer Siddiqui (respondent no.1) or his father Ex-Captain M. Ozair or the widow of Late Captain M. Ammar in whose partnership he had actually applied for the distributorship8. On 31.10.1973 both respondent nos.2 and 3 went to Calcutta to meet the Branch Manager, IOCL. The respondent no.2 expressed his desire to transfer his share in the partnership in the name of either his wife or his father. The respondent no.3 gave oral consent to the desire expressed by respondent no.2. Later, the respondent no.3 confirmed his oral consent by writing a letter dated 15.11.1973 addressed to the Branch Manager, IOCL9. The respondent no.2 through letter dated 17.11.1973 addressed to the Branch Manager, IOCL sought IOCL?s permission to transfer his share in the partnership in the name of either his wife or his father. On 02.1.1974, the respondent no.2 joined Bihar Government Services as Deputy Superintendent of Police10. IOCL vide letter dated 25.02.1974 refused to accede to the request for transfer of shares made by respondent no.2 and stated thus:?…you may recall that during the discussions you had with the undersigned as well as our Branch Sales Manager Sri SC Ghosh alongwith your partner, it was clearly advised that unless all the set backs/irregularities under which the distributorship is being operated are set aside, we shall not be forwarding any such request.?11. Thereafter, the respondent no.2 again wrote a letter on 03.3.1975 to the DGR along with a copy of it to IOCL with same request but, DGR vide letter dated 27.3.1975 refused to accede to the request made by the respondent no.2. The same request was also refused by IOCL vide letter dated 17.4.197512. By a notice published in the daily newspaper ‘Indian Nation? the respondent no.2 indicated his intention to transfer his share in M/s Happy Homes in favour of his wife i.e., respondent no.1 and invited objections to the same, if any. The IOCL vide its letter No. Sales/LPG/3710 dated 16.01.1978 terminated the distributorship. The relevant portions of the said letter are extracted as under:?It was clearly understood that you will not take up any other business or employment during the continuation of the aforesaid distributorship vide his letter of November, 1973 and September, 1975 Capt. Siddiqui has approached us for our permission to his transferring his share in the aforesaid Distributorship to his father which was not acceded to and he was advised to choose one or the two i.e., either to keep his job or remain our distributor. In addition it was also made clear to you by us and also the Directorate General of Resettlement that he cannot be allowed to transfer his share to his father. But he has persisted with the breach and violation of this agreement and did not resign from the jobxx xx xxIn view of the foregoing it has been decided to terminate your distributorship and this letter may be treated as our notice for this purpose. Please note that your distributorship rights shall stand terminated and cancelled on expiry of the period of 30 days without prejudice to the rights of the corporation in respect of any matter or thing antecedent to such termination.?13. On 23.1.1978, the respondent no.2 executed a deed of transfer (Baimokasa) in favour of his wife i.e., respondent no.1 whereby he transferred his share in the partnership in the name of his wife14. On 9.6.1978, the respondent no.1 instituted a Title Suit no. 68 of 1978 in the court of Executive Munsif, Muzaffarpur seeking declaration that termination of the distributorship by IOCL vide letter dated 16.01.1978 was illegal, arbitrary and unjustified. The respondent no.1 also prayed for restoration of the distributorship. The trial court vide its judgment and order dated 11.04.1985 dismissed the said suit holding, inter alia, that respondent no.2 had no right to transfer his share in the partnership in the name of his wife i.e., respondent no.115. Aggrieved by the decision of the trial court, the respondent no.1 preferred Title Appeal no. 32 of 1986 in the court of Additional District Judge, Muzaffarpur. The first appellate court vide its judgment and order dated 13.06.1988 dismissed the appeal and upheld the decision of the trial court16. Aggrieved by the decision of the first appellate court, the respondent no.1 preferred Second Appeal no. 516 of 1988 in the High Court of Judicature at Patna by framing certain substantial questions of law and urged various tenable grounds in support of the same. The High Court vide its judgment and order dated 03.07.2007 allowed the appeal by setting aside the judgments and orders passed by the courts below. It declared that the letter of termination dated 16.01.1978 issued by IOCL in terminating distributorship of respondent no.2 to be illegal, arbitrary and unjustified and gave direction for restoration of the distributorship. Hence, this appeal is filed by the appellant questioning the correctness of the impugned judgment and order by framing certain questions of law

Court's reasoning:
we agree with the arguments advanced by Mr. Kapil Sibal. We have examined the material on record and on the basis of the admitted facts, it is clear that there is no dispute that the appellant-IOCL offered distributorship of Indane Gas (LPG) to respondent nos.2 and 3 vide its letter of allotment dated 21.10.1971 on certain terms and conditions. It is also an admitted fact that both respondent nos. 2 and 3 got the partnership firm registered as per the terms and conditions of letter of allotment and at least twice requested IOCL to send the Company?s standard agreement for signature, but IOCL failed to send it to them. Hence, it can be inferred from the pleadings and evidence on record that the Company?s standard agreement was never executed by themThere is nothing on record to show that both the respondent nos. 2 and 3 had any knowledge or had ever agreed to the terms of the said standard agreement. We agree with the submission made by Mr. Sibal that the agreement which is not executed by the parties cannot be legally made enforceable against them. Therefore, the High Court has rightly held that the standard agreement cannot be said to be legally binding upon the respondent nos. 2 and 3 as the same has never been executed between the allottes and IOCLIt is clear from the pleadings and evidence on record that the standard agreement was never supplied to both the respondent nos. 2 and 3 and the said standard agreement cannot be said to be executed between the allottes and IOCL. Thus, as per the facts and circumstances of the case and also in the light of the aforesaid statutory provision of the Contract Act, the said standard agreement in question cannot be said to be a concluded contract between the parties in law. Consequently, it cannot be made binding upon the allottes of distributorship by IOCL29. As far as the alleged violation of clause 21 (supra) of the standard agreement by respondent nos. 2 and 3 is concerned, it is clear that the said standard agreement is not binding upon the parties for the reasons stated supra and when the said standard agreement is not binding, then the question of violation of terms and conditions does not arise. Rather IOCL has violated condition no.2 (supra) of the letter of allotment by not sending the standard agreement to both the respondent nos. 2 and 331. Further, it has been rightly contended by the learned senior counsel Mr. Sibal by placing reliance upon Mahabir Auto Stores?s case (supra) that IOCL being a Government of India Undertaking is bound to act fairly, reasonably and its conduct is subject to scrutiny on the touchstone of Article 14 of the Constitution of India36. We agree with the contentions advanced by the Mr. Sibal. The High Court in the impugned judgment and order has rightly held that the provision under section 14(1)(c) of the Act is not applicable to the facts and circumstances of the instant case37. Furthermore, from a perusal of letter of allotment, it is clear that there is no arbitration clause therein. Thus, the case of Amritsar Gas Services (supra) relied upon by IOCL in its contentions is of no relevance38. For the reasons mentioned supra we are of the view that no error has been committed by the High Court in setting aside the erroneous findings of the trial court as well as the first appellate court in its judgments and orders