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Judgment
Appellants are respondents in the writ petition, and present appeal is directed against the order, dated 27.10.2025, in W.P.No.23614 of 2013, whereby learned Single Judge, while allowing the writ petition, invalidated the orders passed by respondents therein terminating the retail petroleum outlet dealership of writ petitioner, as confirmed in appeal.
The facts leading to filing of present appeal are as under:
Dealership agreement, dated 08.07.1986, was entered into between appellant, Indian Oil Corporation Limited, and 1st respondent/ 1st writ petitioner, for running petroleum retail outlet.
An inspection was conducted on 28.08.2012 by officials of Anti-Adulteration Cell, and it was found that additional/unauthorized fittings in two MIDCO 980C DUs were installed for delivering MS, and both were having unauthorized double metallic gears, one above the other, in the metering unit. Further, out of three HSD DUs, two of them were found to be having double metallic gears, one above the other. This led to the issuance of show-cause notice, dated 31.08.2012, in terms of Clause 6.1.5 of the Marketing Discipline Guidelines, 2005 (“MDG 2005”).
The dealer submitted explanation, dated 13.09.2012, refuting the charges. Subsequently, on 21.09.2012, yet again inspection was conducted, which led to issuance of second show-cause notice, dated 18.10.2012, with similar charges, and it was pointed out that the same constituted violation and breach of Clauses 4, 16, 21, 44, 58, and 6.1.5 of the MDG 2005. Thus, explanation was sought for.
Dealer submitted explanation on 25.10.2012, yet again refuting the charges. Dissatisfied with the explanation, an order of termination was passed on 16.01.2013 by holding that dealer was responsible and instrumental in insertion of double metallic gears in four dispensing units, which amounted to violation of Clause 5.1.4, thus, punishable under Clause 8.2 with termination. Appeal preferred against aforesaid order was also dismissed vide order, dated 26.07.2013.
In those circumstances, the dealer preferred writ petition assailing the order of termination, as confirmed in appeal.
The learned Single Judge, while taking note of fact that at the time of inspection seals placed by Weights and Measures Department were intact, besides there being no variation in stock and short delivery, held that conclusions arrived at by original authority, as confirmed by appellate authority, were unfounded, without any basis and presumptive, accordingly, allowed the writ petition. For coming to such conclusion, learned Single Judge relied on the judgments of Composite High Court of A.P., as well as this Court in P.Laxmikant Rao & Sons v. Union of India1; Hindustan Petroleum Corporation Ltd. v. M/s.Balaji Services Station2; and Indian Oil Corporation Ltd. v. Pullareddy Service Centre3. Thus, the present appeal is preferred.
Heard Mr.D.Prudhvi Teja, learned counsel, representing Mr.Sai Sanjay Suraneni, learned counsel for appellants, and Sri O.Manohar Reddy, learned senior counsel, assisted by Mr.S.V.S.Chowdary, learned counsel for respondents.
Learned counsel appearing for appellants strenuously contended that learned Single Judge ought not to have interdicted with the well-considered and reasoned orders of termination, as confirmed in appeal. He further contended that learned Single Judge erred in noticing Clause 5.1.4, which contemplated that mere existence of unauthorized additional gear in dispensing unit, likely to manipulate delivery, would be sufficient for imposing punishment in terms of Clause 8.2, i.e., termination of dealership, thus, it necessarily need not be proved and established that such insertion was done at the instance of dealer. He further contended that even the manufacturer has opined that unauthorized gear found in dispensing units was not manufactured and supplied by it, thus, except for the dealer, none other would have access to undertake such activity, therefore, original authority as well as appellate authority rightly opined and confirmed the breach attributable to dealer, therefore, such sound, reasoned and finding of fact could not have been interdicted by learned Single Judge. He further emphasized that, in terms of Clause 5.1.4, very existence of additional fittings, i.e., double gear in the present case, likely to manipulate delivery, will be deemed to be treated as tampering of dispensing unit, therefore, any variation in stock nor short delivery, would be inconsequential.
Opposing aforesaid contentions, learned Senior Counsel appearing for 1st respondent-dealer, while supporting the impugned judgment, contended that when seals put by Weights and Measures Department are found to be intact, and there is neither variation in stock nor short delivery, merely because dispensing unit is within the premises of dealer, no presumption can be drawn to hold that it is dealer alone responsible and liable for tampering with dispensing unit. Learned Senior Counsel further submitted that dealer would have no role to play either in installation of dispensing unit or would be made aware of the components which would go into and be part of such dispensing unit, rather, it is the officers of IOCL and manufacturer or supplier who undertake installation and maintenance for all purposes. Further, it is also sealed by the officers of Weights and Measures Department, thus, under no circumstances would dealer be involved in any of aforesaid activities. To buttress aforesaid submissions, learned Senior Counsel placed reliance on the judgments rendered by Coordinate Benches of the composite High Court as well as this Court in P.Laxmikant Rao & Sons1; M/s.Balaji Services Station2; and Pullareddy Service Centre3.
We have given our anxious consideration to the submissions made above and perused the record.
The specific charges levelled against dealer in terms of first show-cause notice, dated 31.08.20212, as well as second show-cause notice, dated 18.10.2012, are as under:
“1)Additional/unauthorized fittings found in two MIDCO 980C Dus installed at your RO for the purpose of delivering MS. Both these MS Dus found to be having unauthorized double metallic gears one above the other, in the metering units.
2)Similarly, there are three HSD Dus out of which HSD:1 and HSD:3 of MIDCO MEB Model were found to be having unauthorized double metallic gears one above the other in the metering units.”
The said two charges were issued under Clause 6.1.5 of MDG 2005, besides other clauses. Though aforesaid charges were refuted by giving explanation, impugned termination order was passed. The termination order, while dealing with explanation submitted, rendered the following finding:
“As mentioned above, the explanation offered by you is not satisfactory because while admitting the existence of gears in the dispensing units, you state that you are not responsible for the same in any manner, as you neither have the knowledge about the double metallic gears nor access to the metering units of the DUs, as they are maintained by the OEM / Corporation and periodically inspected by the representative of the corporation itself. The explanation as given by you in the above-referred paragraphs given as a, b, c, d, & e mentions only the circumstantial and other associated and secondary factors prevailing at the time of inspection, but do not offer any acceptable and valid explanation for the very existence of the double metallic gears itself, in the four DUs and surprisingly pretend ignorance as your reason & absolve yourself of your responsibility of taking care of DUs as per Company’s policy which is not acceptable to the corporation.”
Further, even the appellate authority, dismissing appeal, has rendered following findings:
“The dispensing units installed at the RO were in the custody of the appellant and it is his responsibility to ensure that no unauthorized fittings are installed in it. Moreover, none else than the appellant could have any interest whatsoever in installing such fittings which can be used for manipulating delivery from the DU at will. How the fittings were done does not affect the merit of the case. No reasons for existence of unauthorized gears have been given by the appellant. …
“In four out of five dispensing units at the RO the original gears of metering units were found replaced with double metallic gears. This has been accepted by the appellant. Very purpose of installing double metallic gears in DUs is to manipulate its delivery so as to cheat the customers. Appellant's contention that he had no knowledge of these unauthorized gears has no merit as it is immaterial whether unauthorized fittings were done personally by him or somebody else at his instance” …
“In their DUs Midco does not supply double metallic gears and hence appellant's contention that on 21.09.2012 Midco only certified that the make of double gear fitting is not of OEM is not correct. Vide letter dated 21.09.2012, Midco Official stated as under in respect of four numbers of DUs:
"In all above DUs found unauthorized gear assly avallable in all these metering units which is not manufactured and supplied by Midco". This proved that the Midco gear assembly, which does not have double metallic gears but only single layer of gear, were replaced with unauthorized gear assembly having double metallic gears. As stated above purpose of double metallic gears is to manipulate delivery from dispensing units at will.” …
“Very purpose of fitting of double metallic gear in a DU is for manipulation of delivery at will. Since these gears were found in the metering unit of four numbers of Dispensing Units of the RO it is established that there was intention to manipulate delivery. If there was no intention of doing so this type of fitting would not have existed in the dispensing units. Hence, appellant's plea that other items checked during inspection were found to be ok is devoid of merit.”
We are of the view that learned Single Judge was absolutely justified in holding that there is nothing on record to suggest seals put by Weights and Measures Department were tampered with by the dealer. In fact, on both occasions when inspections were conducted on 28.08.2012 and 18.10.2012, seals were found to be intact. That apart, learned Single Judge also took note of the fact that even immediate preceding inspection conducted on 03.07.2012, nothing was pointed out against the dealer. That apart, learned Single Judge noted, and in our opinion, quite rightly, that observations in inspection report did not indicate any variation in stock nor short delivery. Even learned counsel for appellants also does not deny or dispute the factum of seals being intact and no variation being found in stock or short delivery.
But, however, the entire fulcrum of argument raised by learned counsel for appellants is that mere presence of additional fittings in dispensing units, which are likely to manipulate delivery, would suffice to hold dealer to be at fault and breach of Clause 5.1.4 in view of operation of deeming provision. Learned counsel for appellants further contended that even in case where there is no shortage of stock or delivery, still Clause 5.1.4 can be invoked if it is found that the additional fittings in the dispensing unit are likely to manipulate delivery.
We are not in agreement with aforesaid submission, which would have far-reaching consequences. As rightly contended by learned Senior Counsel for dealer, since installation of dispensing unit is done by officials of appellants assisted by manufacturer within premises of dealer, has any say either in the process of installation or there is any mechanism in place to verify and confirm the components, which are integral to dispensing unit, no inference can be drawn that dealer alone is responsible for such unauthorized fittings, particularly when the seals are intact, and there is no variation of stock or short supply. The reasoning and findings rendered by learned Single Judge, in our considered opinion, do not call for any interference. In fact, learned Single Judge followed the judgments rendered in P.Laxmikant Rao & Sons1; M/s.Balaji Services Station2; and Pullareddy Service Centre3, which have succinctly dealt with the identical issue.
In P.Laxmikant Rao & Sons1, the Composite High Court of A.P. made following observations in paras.6 and 7:
“6.The dealer was charged with having committed the malpractice/irregularity of short supply by tampering with the Corporation's equipment namely the Dispensing Unit by using unauthorized fittings or gears and that the (dealer's) act of putting additional gear to the Dispensing Unit resulting in short supply tantamounts to tampering with the Dispensing Unit.
7.On the basis of the charge, it is apparent that before any conclusion as to misconduct or malpractice or tampering by the dealer is arrived at, it must be demonstrated by the appellants by the standards of preponderance of probabilities (no lesser standard known to law exists) that the dealer could access the internal mechanism of the unit and could introduce the spurious gear. Alternatively, a compelling inference as to tampering by or on behalf of the dealer could have perhaps been legitimately arrived at if the respondents could establish that a proper gear was in fact installed in the unit on an earlier occasion and the dealer or his agents could have substituted the gear with a spurious one, even while the seal to the unit was intact. In the absence of officials of Weights and Measures Department and by obtaining only their telephonic approval, the seals were broken by agents of the appellants and the Metering Unit opened. It is the admitted factual scenario that the seals of the Dispensing unit were intact and as observed by the learned single Judge it is not the case of the appellants that the dealer or any other individual could gain access to the unit where the “spurious gear” was introduced even while the seal of the unit was intact. It is not the case of the appellants that the seals of the unit were tampered with or duplicate seals substituted for the seals put by officials of the Legal Metrology Department. Neither the show cause notice nor the final order impugned in the writ petition unravels the mystery of the closed unit and metaphysical entry of the spurious gear into the unit. This was a fatal error in the order of termination of the dealership, on account of which the learned single Judge was persuaded to invalidate the order of termination of the respondent's dealership, by the appellants.”
In M/s.Balaji Services Station3, the Composite High Court of A.P. made following observations in paras.9 and 10:
“9.The learned single Judge noted, and in our opinion quite rightly, that there was nothing to show that the seals had been tampered with by the respondent. In fact, on inspections made on 08-09-2009 and 19-10-2009, it was found that the seals were intact. That being the position, there was no question of the respondent having tampered with the seals to put a gear having additional tooth.
10.The learned single Judge also noted, again in our opinion quite rightly, that even if the respondent had tampered with the unit, the tampering would not be to the detriment of the respondent since by the tampering alleged to have been committed, 25 ml in excess of petrol or diesel would be supplied for every five litres given to the purchaser. No businessman would like to tamper with the seals to his detriment and for the purposes of causing a loss to him.”
In Pullareddy Service Centre3, a coordinate Bench of this Court made following observations in paras.25 and 26:
25.This Court is of the considered view that the above said judgment of the Hon'ble Division Bench applies to the facts of the case in principle and is, therefore, not persuaded to take any different view in the facts and circumstances of the case, wherein no material/evidence was brought on record to the effect that the additional gear was inserted by the dealer with a view to manipulate the delivery of petrol/diesel. It is neither the case of the appellants that unauthorized fittings/additional gears in the dispensing units were inserted by the dealer in collusion with the authorities nor any such allegations were made to that effect. In the absence of which, nothing adverse against the petitioner/dealer can be inferred. This Court is, therefore, inclined to uphold the submissions made by the learned counsel for the respondent and reject the contentions contra of the learned Senior Counsel for the appellant No. 1/Corporation.
26.In Indian Oil Corporation's case relied on by the learned counsel for the appellants, the Hon'ble Supreme Court looking to the facts and circumstances of the case and on perusing the material on record held that acknowledgment of inspection report by putting seal and signature cannot be allowed to be resiled on the ground that the same were signed in good faith and the officials of the Oil Company cannot take advantage of the same. The said Judgment, in the considered view of this Court, is not applicable to the facts of the present case. Signing of the inspection report acknowledging the presence of additional gear would not ipso facto amount to accepting the insertion of the same by the petitioner. The burden lies on the appellants to establish that the same was inserted to manipulate the delivery of the fuel. In the present case, respondent No. 3/the Original authority arrived at the conclusions to the effect that being custodian of the outlet/equipment, the petitioner is responsible for presence of additional/unauthorized gear without adverting to the plea that it is not possible to do so when seals are intact. Even the appellant No. 2/appellate authority based its findings on assumptions and presumptions while opining that termination of the dealership was based on established fact of unauthorized fitting alone and the issue of excess stock of MS and negative stock in HSD is of no further consequence, is not being dealt with. As pointed out by the Division Bench, no finding was recorded as to how a spurious gear can be inserted in the dispensing unit when the seals are intact. It may be pertinent to note here that Clause 8.5.2 of MDG provides as follows:
“All cases of irregularities needs to be established before any action is taken against a dealer.”
In aforesaid three cases, there is neither tampering of seals nor short delivery. In those circumstances, it was held that termination was bad in law without there being substantive enquiry.
We may also further add that neither in the order of termination nor in appellate order confirming the same, there is any reference to specific evidence or material to come to conclusion that double gears were inserted by active participation of dealer, rather, the reasoning and findings merely proceed on assumptions and presumptions that ultimate beneficiary would be the dealer and none else. When there is a serious allegation of manipulation of delivery by inserting unauthorized fittings, which constitutes serious and critical violation, leading to termination of dealership, the least expected is to prove the same with cogent and sufficient evidence, rather than on mere surmises and conjectures. The irregularities definitely require to be established by known canons of law before any action is taken against the dealer. Thus, we are of the view that learned Single Judge was justified in coming to the conclusions as arrived at for the purpose of setting aside the impugned order of termination as confirmed in appeal.
Madhya Pradesh High Court in M/s.Kanhaiyalal & Co. v. Indian Oil Corporation Ltd.4, by setting aside the impugned order of learned Single Judge, in turn, quashed order of termination of dealership and permitted the dealer therein to operate the retail outlet. The said judgment, in turn, came to be stayed by Hon’ble Apex Court in SLP (Civil) Diary No.45612/2024, on 29.11.2024. Learned counsel for appellants, thus, by placing reliance on aforesaid orders of Hon’ble Apex Court, contended that in identical circumstances, the judgment of Madhya Pradesh High Court in M/s.Kanhaiyalal & Co.4 has been stayed, therefore, the judgments on which respondent- Dealer relied on, which are in similar lines, have any consequences.
In M/s.Kanhaiyalal & Co.4, there was a serious dispute with regard to tampering of seals and dispensing unit by the dealer, which is not so in the present case. Further, in the said case, it was held that even if tampering is assumed to have taken place, it has not caused loss to customers nor any gain to dealer. As can be seen from the said judgment, it was a case where dealer was found to have tampered the seals, nonetheless, in absence of shortage of stock or delivery, in the peculiar facts and circumstances of the case, the termination of dealership was found to be unjustified. As mentioned above, in the present case, it is not even the case of appellants that seals were ever tampered, therefore, the point that fell for consideration in M/s.Kanhaiyalal & Co.4, which is now under further examination in S.L.P., stand altogether on different footing.
We, therefore, see no merit in the appeal, and accordingly, the same stands dismissed. No order as to costs.
As a sequel, miscellaneous petitions pending, if any, shall stand closed.