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Judgment
P. Jyothimani, J.—Heard the learned Counsel for the petitioner and the learned Counsel for the respondents.
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.
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.
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.
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.
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 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 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.
Mr. A.R.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.
He would rely upon the judgment reported in 2003 (1) CTC 189 (Harbanslal Sahnia and Anr. v. Indian Oil Corporation Ltd., and Ors.). He
would also rely upon the judgment of the Division Bench 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. Vs. Minerals and Metals Trading Corporation of India Ltd. and Others, .
ii) In Popcorn Entertainment and Anr. v. City Industrial Development Corporation and Anr. reported in 2007 (6) SCJ 947.
iii) In Geetha Kasturirangan and Anr. v. Hindustan Petroleum Corporation Ltd. reported in 2008(8) MLJ 971.
iv) In Dhampur Sugar Mills Ltd. v. State of U.P. and Ors. reported in AIR 2007 SCW 2007 6072.
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.
It is the further submission of Mr. A.R.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 and Wovens and Others, .
ii) In State of N.C.T. of Delhi and Another Vs. Sanjeev @ Bittoo, .
iii) In Mrs. Sanjana M. Wig Vs. Hindustan Petro Corporation Ltd.,
iv) In Noble Resources Ltd. Vs. State of Orissa and Another, .
v) In Pimpri Chinchwad Municipal Corporation and Others Vs. Gayatri Construction Company and Another, .
vi) In Swapan Kumar Pal v. Achintya Kumar Nayak and Ors. reported in 2008(2) MLJ 569 (SC).
vii) In Bisra Stone Lime Co. Ltd. and Another Vs. Orissa State Electricity Board and Another, .
viii) In Kurshed Sharfudeen and S. Hafez Khadar Ibrahim Vs. IBP Company Limited, The Divisional Manager, IBP Company Limited and The
Indian Oil Corporation Limited, .
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 Kurshed Sharfudeen and S. Hafez Khadar Ibrahim Vs. IBP Company Limited, The Divisional Manager, IBP Company Limited and The
Indian Oil Corporation Limited,
ii) In Kurshed Sharfudeen and S. Hafez Khadar Ibrahim Vs. IBP Company Limited, The Divisional Manager, IBP Company Limited and The
Indian Oil Corporation Limited,
iii) In Titagarh Paper Mills Ltd. v. Orissa State Electricity Board, (1975) 2 SCC 436
iv) In Bisra Stone Lime Co. Ltd. and Another Vs. Orissa State Electricity Board and Another, .
v) In Smt. Rukmanibai Gupta Vs. Collector Jabalpur and Others, .
vi) In Agri Gold Exims Ltd. Vs. Sri Lakshmi Knits and Wovens and Others, .
vii) In Smt. Kalpana Kothari Vs. Smt. Sudha Yadav and Others, .
viii) In Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity Midway Petroleums, .
ix) In Noble Resources Ltd. Vs. State of Orissa and Another, .
x) In Noble Resources Ltd. Vs. State of Orissa and Another, .
xi) In Pimpri Chinchwad Municipal Corporation and Others Vs. Gayatri Construction Company and Another, .
xii) In State of U.P. and others Vs. Bridge and Roof Co. (India) Ltd., .
xiii) In S.A. Abdul Rasheed v. Tamil Nadu Housing Board rep. by its Managing Director, Chennai and Anr. reported in 2008 (5) MLJ 1496.
xiv) Unreported judgment of this Court in Indian Oil Corporation and Anr. v. Kamala Filling Station, Chennai and Ors. in W.A. No. 2868 of
2003, dated 26.03.2007.
xv) Unreported judgment of this Court in Bharat Petroleum Corporation Ltd and Anr. v. Sree Venkateswara Service Station in O.S.A. Nos. 67
and 68 of 2001 and 132 to 136 of 2003, dated 11.12.2007.
It is also his submission that judicial review in respect of contractual matters are very limited. Even assuming that there is irregularity, the same
cannot be decided by this Court under Article 226 of the Constitution of India.
He would rely upon the following judgments of the Hon''ble Supreme Court as well as this Court:
i) In State of N.C.T. of Delhi and Another Vs. Sanjeev @ Bittoo, .
ii) In Swapan Kumar Pal v. Achintya Kumar Nayak and Ors. reported in 2008(2) MLJ 569 (SC).
iii) In Mrs. Sanjana M. Wig Vs. Hindustan Petro Corporation Ltd., .
iv) In R.K. Koteeswaran, Proprietor, Padmavathy Constructions Vs. General Manager, Southern Railway and Others, .
v) In S. Sitaraman v. Hindustan Petroleum Corporation Ltd. and Anr. reported in 2000(1) MLJ 769.
vi) In K. Vinod Kumar Vs. S. Palanisamy and Others, .
vii) In E. Venkatakrishna Vs. Indian Oil Corporation and Another, .
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.
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.
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 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.,
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.
Clause 66 of the said agreement which provides for settlement of dispute by arbitration stands as follows:
Any dispute or difference of any nature whatsoever or regarding any right, liability, act omission or account of any of the parties hereto arising
out of or in relation to this agreement shall be referred to the sole arbitration of the Managing Director of the Corporation or of some officer of the
Corporation who may be nominated by the Managing Director. The dealer will not be entitled to raise any objection to any such arbitrator on the
ground that the arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that in the course of
his duties as an officer of the Corporation he had expressed views on all or any of the matters in dispute or difference. In the event of the arbitrator
to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Managing Director as
aforesaid at the time of such transfer, vacation of office or inability to act, shall designate another person to act as arbitrator in accordance with the
terms of the agreement such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a
term of this contract that no person other than the Managing Director or a person nominated by such Managing Director of the Corporation as
aforesaid shall act as Arbitrator hereunder. The award of the Arbitrator so appointed shall be final, conclusive and binding on all parties to the
agreement, subject to the provisions of the Arbitration Act, 1940 or any statutory modification of or re-enactment thereof and the rules made
thereunder and for the time being in force shall apply to the arbitration proceedings under this clause.
The award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four
months as the sole Arbitrator shall by a writing under his own hands appoint.
In respect of the implementation of the said dealership licence agreement before issuing the show cause notice which was on 11.08.2008, it is
seen that the Corporation has done certain preliminary inspection as it is seen in the inspection report dated 24.01.2008 and the inspection report
of the Field Officer has been signed by the representative of the dealer namely, the petitioner. It is seen that at least in two invoices dated
05.05.2008 and 10.05.2008, the representative of the petitioner has admitted the variation regarding the shortage of 189 litres in respect of power
and 239 litres in respect of turbojet. The inspection report at the preliminary stage filed by the respondent''s official shows that they were all
conducted in the presence of the representative of the petitioner. By a letter dated 31.05.2008, based on the preliminary inspection of the Sales
Officer, dated 04.05.2008 by comparing the sale effected in the retail outlet from January 2008, the first respondent has informed the petitioner to
explain for the defects which was elicited as follows:
The nozzle sales of HSD ranges from 1200 to 2000 lts per day (24 hours) and that of MS it is 428 to 1000 lts. However, it was observed that the
quite often the HSD sales during midnights (between 1000 hrs to 0130 hrs, the nozzles sales ranges from 4000 to 8000 lts. in case of HSD and
about 4000 in case of MS.
Similarly, the normal nozzle sales ranges from 428 to 1000 lts in case of Power and 354 to 890 lts. in case of Turbojet. However, on many days,
between 1000 hrs to 0130 hrs., the sales of Power & Turbojet pumped through nozzles is recorded in the range of 1 Kl to 4 KL.
It was also observed that 999 litres of Power was pumped through nozzle in a single transaction.
The daily sales recorded in DSR is highly incongruence with the Daily sales as per Automation Data source.
The abnormal high sales volumes on specific days does not commensurate with the daily average sales and does not commensurate with the vehicle
movement study of your trading area at midnights.
You are not capturing the vehicle numbers of all the vehicles in automated system as advised.
It is true that the petitioner has given a reply on 11.06.2008 finding fault with the report of the Sales Officer of the Corporation in having
committed certain mistakes and it was thereafter a detailed show cause notice came to be issued on 11.08.2008 bringing to the notice of the
petitioner that irregularities have been committed in violation of the Clause Nos. 16, 42, 55(A), and 55(K) of the agreement, dated 01.10.2004
and the show cause notice is for the purpose of taking action for the violation of the condition of the dealership agreement and that has been
explained by the petitioner in its explanation, dated 26.08.2008. In the writ petition filed by the petitioner for a direction to resume supply after the
show cause notice and the reply given by the petitioner as stated above, in the order dated 04.09.2008, while holding that it is for the first
respondent Corporation to decide whether there is a stock variation and finding that at this stage it was not possible to hold that either the stand of
the corporation is correct or the stand of the petitioner is correct, the following order was passed:
Considering the above facts and circumstances, I am inclined to pass the following order:
a) The respondents are at liberty to pass final orders on the issuance of show cause notice to the petitioner after considering the explanation that
has been offered by the petitioner dated 11.06.2008. The final order could be passed by the first respondent after hearing the petitioner, on merits
and in accordance with law, within a period of two months from the date of receipt of a copy of this order;
b) The respondents shall forthwith supply the Petroleum products to the petitioner;
c) If the final order is against the petitioner, the respondent Corporation is at liberty to impose the penal action as per the rules and procedures
contemplated thereon.
Even after the said order was passed wherein a direction was given to restore the supply in addition to the permission granted to the first
respondent to pass final orders on the basis of the show cause notice and explanation submitted by the petitioner, the inspection report of the Field
Officer of the first respondent Corporation as counter signed by the representative of the petitioner shows that there has been a stock variation and
therefore, the resumption could not be effected. In fact, endorsement in the said Field Officer''s report, dated 26.09.2008 itself, gives the reason
by taking samples for non resumption of sale as per the direction of this Court which are as follows:
Inspection carried out for the purpose of resuming sales as per directions of Court order. However, it is found
i) there is positive variation in stocks MS = Ml Power = 1446 Ltrs HSD = 106 lts & in Turbojet = 300 ltrs.
ii) There is variation in density of power beyond permissible limits.
Dealer to explain the variation for the above to SRM, CHRRO for further action.
The issue is as to whether the endorsement made by the Field Officer about variations which were found on fact during the time of inspection
or its correctness could be decided by this Court especially in its jurisdiction under Article 226 of the Constitution of India by exchange of
affidavits is highly doubtful. But the relevant point is that even after that inspection report of the Field Officer, the first respondent has given another
opportunity to the petitioner on 30.09.2008 directing the petitioner to be present for a personal enquiry on the basis of a finding arrived at by the
Field Officer on the date of inspection. It was, in those circumstances, after an enquiry, the first respondent having come to the conclusion that
there has been a violation committed by the petitioner in respect of various Clauses of the agreement has terminated the dealership agreement. In
the impugned order after termination, the first respondent has enabled the petitioner to resort to arbitrary proceedings as per Clause 66, which is as
follows:
Should you have any dispute or difference arising out of or in relation to the Dealership Agreement, Dt.01.10.2004 you are free to invoke Clause
66 of the Dealership Agreement for its adjudication through the process of Arbitration, as already agreed between us. The Arbitrator is already
named in the aforesaid clause of the Dealership Agreement. Please note if you bring any action in any Court, the same shall not be maintainable as
being barred under the Arbitration & Conciliation Act, 1996 and it shall be vehemently contested at your cost.
Therefore, on the face of it, it is clear that the petitioner has a right to invoke arbitration clause even as on date.
The factual assertions as to whether the inspection conducted by the Field Officer on 26.09.2008 wherein on fact he stated to have found
irregularities in stock variation and its correctness certainly requires appreciation of evidence apart from various factual assertions especially when
the claim and counter claim made namely that it is the petitioner''s case that there is no stock variation and even if there is a stock variation the
same is within the permissible limit, while it is the case of the respondent Corporation that there is a gross violation of Clauses of the dealership
agreement. Such factual assertions cannot be gone into by this Court under Article 226 of the Constitution of India especially when the issue
involved is purely contractual as to whether the petitioner has acted against the terms of the contract.
As far as the violation of principles of natural justice is concerned, the above facts show that on the face of it, there is no violation of the
principles of natural justice in the conduct of the first respondent Corporation before passing the impugned order of termination. Inspite of it, it is
the case of the petitioner that inspection was not conducted or enquiry was not effected by following the various technical aspects of quality and
quantity of the materials supplied and even that aspect cannot be gone into in the writ jurisdiction which requires a detailed factual study with a
technical expertise. It is only with that idea the concept of arbitration has been introduced in such agreement. So as to enable both the disputing
parties to ventilate their grievances in full form, so as to have a substantial remedy and such remedy cannot be given by this Court under Article
226 of the Constitution of India.
The Supreme Court in Harbanslal Sahnia and Anr. v. Indian Oil Corporation Ltd. and Ors. reported in 2003 (1) CTC 189 relied upon by the
learned Senior Counsel for the petitioner, while considering the similar issue in respect of termination of dealership agreement with the Indian Oil
Corporation Limited, has allowed the appeal filed by the dealer on the ground that the termination was on irrelevant and non existent grounds and
the sample tests for quality and density was not done in the presence of the dealer and in the context that there was a probability that the
corporation having failed to satisfy with the explanation furnished by the dealer has terminated on different ground and in those circumstances, it
was held that mere existence of arbitration clause is not one of compulsion and it is a rule of discretion by the Court while exercising writ
jurisdiction holding that under 3 contingencies even in contractual matters the writ petition could be entertained in the following paragraphs as
follows:
It is submitted by Shri P.P. Malhotra, the learned senior Counsel for the appellants that the dealership has been terminated on irrelevant and
non-existent grounds and, therefore, the order of termination is liable to be set aside. The Government of Uttar Pradesh have issued directions to
all the District Magistrates of the State in the matter of taking of samples and carrying out tests. There are two Government Orders issued namely
No. 1459/29-7-97-731-PP dated 25.4.1997 and No. 2722/29-7-2000-PP/2000. The orders state inter alia that the strength/frictions of petrol
and diesel change after ten days and therefore time limit of ten days is fixed for testing of such products. It is also emphasized that in the interest of
natural justice, the inspecting officials should test the sample for quality and density at the retail outlet itself in the presence of the dealer with
necessary equipments such a filter paper, hydrometer, thermometer, jar and the conversion table which are available at the retail outlets and record
density thereat only in the presence of the dealer. These government orders were violated in respect of the sample taken on 11.2.2000. Firstly, the
test was not carried out at the retail outlet itself and, secondly, the time gap between the sample taken and lab test carried out is of about a month
which is capable of causing marginal variation as detected. The learned senior Counsel for the appellants invited attention of the Court to an order
dated 24.10.2002 passed by the Commissioner, Nainital in an appeal prefer red against the suspension of petitioners'' licence which too was
founded on the test report of the sample taken on 11.2.2000. Impressed by non-compliance with the instructions contained in the government
orders and the delay in carrying out the lab tests, also keeping in view the previous performance of the petitioners, the learned Commissioner has
allowed the appeal and set aside the suspension as also the fine imposed on the petitioners. The learned Counsel is right in submitting that in view
of the abovesaid facts, the failure of the sample taken from the appellants'' outlet on 11.2.2000 becomes an irrelevant and non-existent fact which
could not have been relied on by the respondent-Corporation for canceling the appellants'' licence .
As already stated, the cancellation is founded solely on the failure of the appellants'' sample. Non-cooperation and discourteous behaviour of the
appellants has been alleged in a very general way without specifying what was non-cooperation and what was the discourtesy shown to the officers
of the respondent-Corporation. The deficiency in sales is also generally stated without particularising the same. So in the case with deficiency in
maintaining the records. Be that as it may, these are the grounds which formed the subject matter of the earlier show cause notice which was not
persuaded. In all probability, the respondent-Corporation felt satisfied with the explanation furnished by the appellants. The order of termination is
certainly not founded on these grounds and, therefore, this aspect need not be pursued further. It may be stated that the appellants have
volunteered to file a statement made on affidavit during the course of hearing before this Court, expressing regrets for any incident of departure
from normal behaviour and courtesy expected of the appellants towards the officials of the respondent-Corporation and submitting that it might
have happened inadvertently but in future the appellants would be more careful and shall show full regards to the visiting officials of the respondent-
Corporation and extend their full cooperation in their dealings with the respondent.
So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and
therefore the writ petition filed by the appellants was liable to be dismissed, suffice it to observe that the rule of exclusion of writ jurisdiction by
availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the alternative
remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies; (i) where the writ petition seeks enforcement of any of
the Fundamental Rights; (ii) where there is failure of principles of natural justice or, (iii) where the orders or proceedings are wholly without
jurisdiction or the vires of an Act and is challenged. See Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, . The present
case attracts applicability of first two contingencies. Moreover, as noted, the petitioners'' dealership, which is their bread and butter, came to be
terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High
Court itself instead of driving them to the need of initiating arbitration proceedings.
In fact, as found by the Supreme Court in the said judgment, the earlier judgment in Whirlpool Corporation Vs. Registrar of Trade Marks,
Mumbai and Others, stood reiterated. That was also reiterated by the First Bench of this Court in an unreported judgment in W.A. No. 731 of
2006, dated 20.06.2006 in Indian Oil Corporation Ltd., Chennai v. Bommai Kadhirvelu and Ors. wherein by quoting a passage of the judgment
of the three-Judge Bench judgment of the Supreme Court reported in 2005 (6) SCC 499 (State of H.P. v. Gujarat Ambuja Cement Limited), the
Hon''ble First Bench of this Court held as follows:
A three-Judge Bench of the Supreme Court in State of H.P. v. Gujarat Ambuja Cement Limited (2005) 6 SCC 499 referring to Harbansal
Sahnia Case (supra) held:
22(24). ...There are two well-recognised exceptions to the doctrine of exhaustion of statutory remedies. First is when the proceedings are taken
before the forum under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court for quashing the
proceedings on the ground that they are incompetent without a party being obliged to wait until those proceedings run their full course. Secondly,
the doctrine has no application when the impugned order has been made in violation of the principles of natural justice. We may add that where the
proceedings itself are an abuse of process of law the High Court in an appropriate case can entertain a writ petition.
23(24) Where under a statue there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are
shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But, normally,
the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the
jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the
remedies provided by the statute.
In the light of the aforesaid settled legal position we are not inclined to accept the contention that the writ petition is not maintainable. After going
through the facts and circumstances of the case, we are fully satisfied that the transaction between the 1st respondent and A.T. Mohanraj was only
a money lending transaction. In any event, the first respondent had fully settled the claim of the A.T. Mohanraj. Thus, the so-called partnership had
never come into existence. In the facts and circumstances of the case, we are not inclined to interfere with the order of the learned single Judge.
Consequently, the writ appeal is dismissed, and the appellant-Corporation is directed to comply with the order of the learned single Judge
forthwith. Consequently, connected C.M.P. is also dismissed. No costs.
The First Bench of this Court presided over by Shivaraj Patil, J. (as he then was) in Aluminium Industries Ltd. Vs. Minerals and Metals
Trading Corporation of India Ltd. and Others, , while considering the hierarchy of judgments in respect of the contractual matters and
maintainability of writ petitions and on the violation of Article 14 of the Constitution of India, including a reference having been made to the
judgment of the Hon''ble Supreme Court in Kumari Shrilekha Vidyarthi and Others Vs. State of U.P. and Others, has held as follows:
From the decisions of the Apex Court referred to in paragraphs 40 to 43, in particular, the decision in Kumari Shrilekha Vidyarthi, it is clear
that the power of judicial review is available even in contractual matters, it would be alien to the Constitution scheme to accept the argument of
exclusion of Article 14 in contractual matters; and Article 14 gets attracted even to contractual matters regulating the conduct of the State activity.
In paragraph 28 of the said judgment, it was found difficult and unrealistic to exclude the State actions in contractual matters after the contract has
been made, from the purview of judicial review to test its validity on the anvil of Article 14.
On the facts of the present case, it is not even the case of the petitioner that there is any violation of Article 14 of the Constitution of India as
per the contract entered and it is well settled that there is no bar for judicial review of contractual matters especially on the facts of the present case
wherein the contract is entered by the statutory Corporation but while testing the fact in terms of Article 14 of the Constitution of India, there is
neither any violation of principles of natural justice nor it could be said that the impugned order of termination is opposed to the principles of law or
without jurisdiction.
Again, the Hon''ble Supreme Court in Popcorn Entertainment and Anr. v. City Industrial Development Corporation and Anr. reported in 2007
(6) SCJ 947 has reiterated that the writ petition is maintainable even in contractual matters under the three contingencies laid down by the Hon''ble
Supreme Court in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, .
The reliance placed on by the learned Senior Counsel for the petitioner the judgment delivered by me in In Geetha Kasturirangan and Anr. v.
Hindustan Petroleum Corporation Ltd. reported in 2008(8) MLJ 971 is not applicable to the facts of the present case. That was a case where an
allegation of adulteration in petroleum product has been made on the basis of a particular test which did not form part of either the dealership
agreement, or the Statutory Order and it was in those circumstances, it was held that there can be no presumption that dealer therein should be
termed as an adulterator and on the fact that the samples taken were sent to the laborartory in violation of the various Clauses of the Motor Spirit
and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order, 2005 which is a statutory enactment passed by
virtue of the powers conferred u/s 3 of the Essential Commodities Act 1955, it was held that the test conducted was extraneous and unfounded in
the dealership agreement and that cannot be a ground for branding a dealer as an adulterator. On the face of it, the judgments relied upon by the
learned Senior Counsel for the petitioner are not applicable to the facts of the present case.
In Titagarh Paper Mills Ltd. v. Orissa State Electricity Board, (1975) 2 SCC 436 , a three-Judge Bench of the Hon''ble Supreme Court while
construing the provision of the Electricity Supply Act, 1948 which provides a reference to arbitration as per the contractual stipulations and in
those circumstances, when the jurisdiction of the High Court was invoked under Article 226 of the Constitution of India while confirming the order
of the High Court in declining to entertain on the basis of the availability of remedy under the arbitration held as follows:
But that does not put an end to the controversy between the parties. It is true that in the press note the Board relied only on Sections 49 and 59
and the Sixth Schedule of the Supply Act as the source of the power under which it claimed to levy the coal surcharge and these provisions have
been found not to contain the power sought in them. But, if there is one principle more well settled than any other, it is that, when an authority takes
action which is within its competence, it cannot be held to be invalid, merely because it purports to be made under a wrong provision, if it can be
shown to be within its power under any other provision. A mere wrong description of the source of power - a mere wrong label - cannot invalidate
the action of an authority, if it is otherwise within its power. The Board claimed that, in any event, even if Sections 49 and 59 and the Sixth
Schedule to the Supply Act could not be construed as authorising the Board to enhance unilaterally the rates for supply of electricity, the Board
had the power under Clause (13) of the agreement to levy the coal surcharge on the appellant and the decision to levy the coal surcharge could be
justified by reference to this power. Now, if this claim of the Board were well founded, it would afford a complete answer to the challenge made
on behalf of the appellant. But the appellant raised various contentions in answer to this plea based on Clause (13) of the agreement. We may have
referred to some of these contentions in an earlier part of the judgment. It is here that the case of the appellant founders on the rock of the
preliminary objection. Clause (23) of the agreement provides that any dispute or difference relating to a question, thing or matter arising under the
agreement shall be referred to the arbitration of a single arbitrator. Questions such as: whether the Board had power under Clause (13) of the
agreement to levy any coal surcharge at all when no such power was conferred on it by the Act, whether the action of the Board in levying the coal
surcharge on the appellant under Clause (13) of the agreement was arbitrary and unreasonable or whether it was based on extraneous and
irrelevant considerations and whether, on the facts and circumstances of the case, the Board was justified under Clause (13) of the agreement to
levy the coal surcharge on the appellant, are plainly questions arising under the agreement and they are covered by the arbitration provision
contained in Clause (23) of the agreement. All the contentions raised by the appellant against the claim to justify the levy of the coal surcharge by
reference to Clause (13) of the agreement would, therefore, seem to be covered by the arbitration agreement and there is no reason why the
appellant should not pursue the remedy of arbitration which it has solemnly accepted under Clause (23) of the agreement and instead invoke the
extraordinary jurisdiction of the High Court under Article 226 of the Constitution to determine questions which really form the subject-matter of the
arbitration agreement. We are, therefore, of the view that the High Court was right in exercising its discretion against entertaining the writ petition
on merits, insofar as it was directed against the validity of the levy of the coal surcharge under Clause (13) of the agreement. The merits of the
contentions raised by the appellant would have to be decided by arbitration as provided in Clause (23) of the agreement.
Again while construing the same Electricity Supply Act, 1948, the Hon''ble Supreme Court has reiterated the said stand in Bisra Stone Lime
Co. Ltd. and Another Vs. Orissa State Electricity Board and Another, in the following paragraph:
It is then submitted that this Court should not use its discretion in favour of arbitration in a matter where it is a pure question of law as to the
power of the Board to levy a surcharge. This submission would have great force if the sole question involved were the scope and ambit of the
power of the Board under Sections 49 and 59 of the Act to levy a surcharge, as it was sought to be initially argued. The question in that event may
not have been within the content of Clause 23 of the agreement. But all questions of law, one of which may be interpretation of the agreement,
need not necessarily be withdrawn from the domestic forum because the court has discretion u/s 34 of the Arbitration Act or under Article 226 of
the Constitution and that the court is better posted to decide such questions. The arbitration Clause 23 is a clause of wide amplitude taking in its
sweep even interpretation of the agreement and necessarily, therefore, of Clause 13 therein. We are, therefore, unable to accede to the submission
that we should exercise our discretion to withhold the matter from arbitration and deal with it ourselves.
thereby holding that the arbitration clause is having amplitude.
Even in cases where the governmental contracts provide for reference of any doubt and dispute to the State for final decision it was held by the
Supreme Court that Arbitration Act 1940 would apply and Article 226 of the Constitution of India is barred. That was in Smt. Rukmanibai Gupta
Vs. Collector Jabalpur and Others, .
Arbitration Act, 1940, is a self-contained and exhaustive code. It provides for filing arbitration agreement to the jurisdiction of court,
appointment and removal of arbitrator by court, making award a rule of court, remitting or setting aside an award etc. Where the arbitrator has
made an award it can be questioned u/s 33. Section 32 bars a suit on any ground whatsoever for contesting an award and further provides that no
award shall be enforced, set aside, amended, modified or in any way affected otherwise than as provided in the Arbitration Act itself. Thus,
Arbitration Act, 1940, is a self-contained exhaustive code. Relief sought by the appellant by involving extraordinary jurisdiction of the High Court
under Article 226 could have been obtained by proceeding in accordance with the relevant provisions of the Arbitration Act. In this situation, if the
High Court declined to entertain the writ petition, no exception can be taken to it. Further the indenture of lease constitutes a contract between the
parties. Right to excavate limestone from leased area and obligation to pay royalty under the relevant Minor Mineral Rules arise from the contract.
The contract provided for resolution of dispute arising out of the carrying out of contract. The writ jurisdiction of the High Court under Article 226
of the Constitution is not intended to facilitate avoidance of obligation voluntarily incurred, see Har Shankar v. Dy. Excise & Taxation
Commissioner.
The scope of judicial review in administrative matters relating to the dealer selection board for allotment of distributorships of Bharat Gas giving
marks to the applicant it was held by the Hon''ble Supreme Court that the judicial review could be confined only to the decision making process
and does not extend to the merits of the decision taken. That was in K. Vinod Kumar Vs. S. Palanisamy and Others, . It was held as follows:
The law is settled that over proceedings and decisions taken in administrative matters, the scope of judicial review is confined to the decision-
making process and does not extend to the merits of the decision taken. No infirmity is pointed out in the proceedings of the Selection Board
which may have the effect of vitiating the selection process. The capability of the appellant herein to otherwise perform as an LPG distributor is not
in dispute. The High Court was not, therefore, justified in interfering with the decision of the Selection Board and the decision of BPCL to issue the
letter of allotment to the appellant herein.
On the facts of the present case also there is no infirmity in the procedure followed by the respondent Corporation which is in accordance with the
contract and therefore, the scope of judicial review is not extendable to the facts of the present case.
Again under the same line of decision, it was held in State of N.C.T. of Delhi and Another Vs. Sanjeev @ Bittoo, that while dealing about the
externment order under Delhi Police Act, 1978 it was held that it is not the sufficiency of material but the existence of material which is sine qua
non as a pre-requisite for such order.
While holding that in respect of contractual matters of State, there is no total bar of judicial reference it was held in Noble Resources Ltd. Vs.
State of Orissa and Another, that where serious questions of fact are raised requiring appreciation of evidence, it cannot be convenient to decide
the dispute under Article 226 of the Constitution of India holding that the facts and circumstances are to be looked into. A fine distinction was
made by S.B. Sinha, J. as follows:
One of the points that falls for determination is the scope for judicial interference in matters of administrative decisions. Administrative action is
stated to be referable to broad area of governmental activities in which the repositories of power may exercise every class of statutory function of
executive, quasi-legislative and quasi-judicial nature. It is trite law that exercise of power, whether legislative or administrative, will be set aside if
there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary see State of U.P. v. Renusagar Power Co.
At one time, the traditional view in England was that the executive was not answerable where its action was attributable to the exercise of
prerogative power. Professor de Smith in his classical work Judicial Review of Administrative Action, 4th Edn. at pp. 285-87 states the legal
position in his own terse language that the relevant principles formulated by the courts may be broadly summarised as follows: The authority in
which discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, discretion must
be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it; it must not act under
the dictates of another body or disable itself from exercising discretion in each individual case. In the purported exercise of its discretion, it must not
do what it has been forbidden to do, nor must it do what it has not been authorised to do. It must act in good faith, must have regard to all relevant
considerations and must not be influenced by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the
legislation that gives it power to act, and must not act arbitrarily or capriciously. These several principles can conveniently be grouped in two main
categories: (i) failure to exercise a discretion, and (ii) excess or abuse of discretionary power. The two classes are not, however, mutually
exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account, and where an authority
hands over its discretion to another body it acts ultra vires.
Again in Pimpri Chinchwad Municipal Corporation and Others Vs. Gayatri Construction Company and Another, while analysing various
judgments regarding the maintainability of the writ petition under Article 226 of the Constitution of India in contractual matters including the
following judgments of the Apex Court:
In National Highway Authority of India Vs. Ganga Enterprises and Another, ,
In Verigamto Naveen Vs. Government of Andhra Pradesh and Others, ,
In Kerala State Electricity Board and Another Vs. Kurien E. Kalathil and Others, ,
In India Thermal Power Ltd. Vs. State of M.P. and Others, ,
In State of U.P. and others Vs. Bridge and Roof Co. (India) Ltd., ,
In State of Gujarat and Others Vs. Meghji Pethraj Shah Charitable Trust and Others, ,
In Bareilly Development Authority and Another Vs. Ajay Pal Singh and Others, ,
In Harminder Singh Arora Vs. Union of India (UOI) and Others, ,
The Hon''ble Supreme Court has distinguished the statutory contracts and non statutory contracts. While deciding about the action of a
Corporation deciding to stop work in respect of improvement and widening of a part of the Thermax-Telco-Bhosari Road which was divided in
three phases for non completion of work by a contractor holding that the High Court ought not to have entertained the writ petition.
The Hon''ble First Bench of this Court in R.K. Koteeswaran, Proprietor, Padmavathy Constructions Vs. General Manager, Southern Railway
and Others, while deciding the scope of judicial review in contractual matters regarding the termination as per the terms of agreement held that the
writ petition is not maintainable and held as follows:
We may point out here that Kumari Shrilekha Vidyarthi and Others Vs. State of U.P. and Others, was a case in which cancellation or
termination of the appointment of the Government Pleaders embolic was questioned. It was held by the Supreme Court that there did involve a
public element and therefore, the Government''s exercise of executive power, even if it may involve a contract, will attract Article 14 of the
Constitution. Therefore, we find it difficult to apply the ratio in that decision to commercial contracts. If in commercial contract matters in between
the private party and the State or instructions coming within the definition of the State as per Article 12 of the Constitution, the said ratio is applied
then it would not be necessary to have any Civil Court also. Breacher otherwise of a commercial contract depends upon performance or otherwise
of several conditions of the contract and the facts involved therein and determination of the liability involving money claim, require evidence oral
and/or documentary as the case may be. The parties will be entitled to damages also. Therefore, in the nature of things, such claims are to be
adjudicated after trial by the competent civil Court or arbitration if the contract contains an arbitration clause. Therefore, we are of the view that the
learned single Judge is right in declining to entertain the prayer holding that the proper remedy of the petitioner would be to approach the civil
Court or arbitration as the case may be.
I had an occasion to consider the scope of judicial review under Article 226 of the Constitution of India, in the light of the Full Bench judgment
of this Court reported in 1998 (1) MLJ 1 (Aluminium Industries Ltd., Madras represented by its Commercial Manager Laboi, Madras-18 v.
Minerals & Metals Trading Corporation of India Ltd., Chennai) by quoting two paragraphs of the Full Bench judgment. That was in S.A. Abdul
Rasheed v. Tamil Nadu Housing Board rep. by its Managing Director, Chennai and Anr. reported in 2008 (5) MLJ 1496 which is as follows:
It has been the categoric pronouncement of the Apex Court that writ petition is not ordinarily maintainable for enforcement of terms of a
contract or for claim of damages arising out of a concluded contract, even if one of the parties tot he contract happens to be the State. The law is
well settled that writ jurisdiction can be invoked and the power of judicial review can be exercised only in the extraordinary circumstances in
respect of contractual matters. The law in this aspect came to decided by the Full Bench of this Court presided over by Shivaraj Patil, J. (as he
then was) in Aluminium Industries Ltd. Vs. Minerals and Metals Trading Corporation of India Ltd. and Others, . The Full Bench, while considering
whether the act of the State or authority even in respect of contractual matters can be tested under Article 14 of the Constitution of India, has held
that it is in extraordinary and exceptional cases relating to contractual obligations, the remedy is available under Article 226 of the Constitution of
India. The relevant portion of the judgment is as follows at p.12 of MLJ:
The portions extracted from the judgements aforementioned in paragraphs 40 to 43, with emphasis supplied, clearly indicate that power of
judicial review available under Article 226 of the Constitution, in extraordinary and exceptional cases relating to contractual obligations even in
regard to concluded contracts with State or authority, is not excluded in testing the action of the State or Authority, even in such matters on the
touch stone of Article 14 of the Constitution of India, because application of Article 14 to any action of the State or authority cannot be excluded.
It is one thing to say that there is total bar to entertain writ petition under Article 226 of the Constitution of India for enforcement of contractual
obligations in cases where one of the parties being a State or Authority within the meaning of Article 12 of the Constitution; and it is yet another
thing to say that the power under Article 226 of the Constitution of India should be exercised rarely and sparinglys in exceptional and extraordinary
cases in such contractual matters. While reiterating that ordinarily writ petitions cannot be entertained under Article 226 of the Constitution of India
for enforcement of terms of contract, or to claim damages arising out of concluded contract for breach of contract, one of the parties being the
State or Authority to such contract, we hold that the jurisdiction to exercise the power of judicial review under Article 226 of the Constitution is
not totally curtailed or absolutely excluded in examining and testing the validity of State action, even in such matters in extraordinary cases as to
whether the requirement of Article 14 of the Constitution were satisfied by the State/Authority, though ordinarily the Courts may not entertain writ
petitions, and decline to grant relief exercising powers under Article 226 of the Constitution for enforcement of terms of contract or to get remedy
for a breach of contract on the basis of concluded contracts, one of the parties being State or Authority to such contracts. This conclusion, we
have reached in the light of the aforementioned decisions and the Constitutional scheme and in particular the provisions contained in Article 14 and
226 of Constitution.
Considering a similar circumstance of termination of agreement by Hindustan Petroleum Corporation Limited, in S. Sitaraman v. Hindustan
Petroleum Corporation Ltd. and Anr. reported in 2000(1) MLJ 769, V.S. Sirpurkar, J. (as His Lordship then was) held that there is no public
element involved nor does the agreement involve any public interest and dismissed the writ petition. In a detailed order, it was held as follows:
The learned Counsel for the petitioner very heavily relied on the decision reported in LIC of India and Another Vs. Consumer Education and
Research center and Others, and more particularly to the observations in paragraph 27, where the Apex Court has very specifically declared that
in the sphere of contractual relations, the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to
public duty or obligation are enjoined to act in a manner which is fair, just and equitable, after taking objectively all the relevant options into
consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest. The
Apex Court has further stated that duty to act fairly is part of fair procedure envisaged under Articles 14 and 21 of the Constitution and every
activity of the public authority or those under Public duty or obligation must be informed by reason and guided by the public interest. In this case,
the Apex Court was considering the legality and validity of the conditions imposed in the policy. Though technically speaking, this was a question
regarding the interpretation of the clauses of an agreement, it cannot be forgotten that there is a definite distinction between the reported decision
and the case on hand. In paragraph 28, the Apex Court says:
The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its
own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and
private law remedy is now narrowed down. The actions of the appellants bears public character with an imprint of public interest element in their
offers, with terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and
simple private law dispute without any insignia of public element.
The emphasised upon portion would show that the situation is not the same here. Here it is a question of the dispute between the individual like the
petitioner and the respondent-company. There is no public element involved nor does the agreement involved any public interest as such affecting
the general public. The case is therefore, clearly distinguishable on facts.
Reliance was also made on the reported decision in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, and more
particularly the observations in paragraphs 14 and 15 thereof. The learned Counsel points out that the Apex Court has held that the exercise of
writ jurisdiction under Article 226 of the Constitution does not operate as a bar in three contingencies; (I) where the writ petition seeks
enforcement of any of the fundamental rights;(ii) where there is violation of principles of natural justice; and (iii) where the order or the proceedings
are wholly without jurisdiction or the vires of an Act is challenged. These observations were made in the backdrop of the facts that in the reported
decision, a showcause notice issued by the Registrar of Trade Marks u/s 56(4) of the Trade and Merchandise Marks Act, 1958 was challenged
by a writ petition. There can be no dispute regarding the principles but it has already been pointed out that there is no question of enforcement of
any fundamental rights in this petition, particularly because the Corporation has relied upon the specific clauses of the agreement to terminate the
contract and, therefore, the action cannot be termed as wholly arbitrary. It has also been shown that there would be no question of violation of
principles of natural justice, as not only the showcause notice has been served, but there are documents in the records to suggest that the reply to
that show cause notice has been thoroughly considered and the corporation is acting on the basis of the agreement which has been entered into by
the petitioner with open eyes. For these reasons, the judgment is of no assistance.
Reliance was also made by the learned Counsel for the petitioner on the reported decision in Vasant D. Bhavsar Vs. Bar Council of India and
Others, where the Supreme Court has castigated the Disciplinary Committee of the Bar Council of India suggesting that their orders in disciplinary
matters should be speaking orders and they must set out the reasons for which they are passed. According to the learned Counsel, in the present
impugned order, no reasons are given. As a matter of fact, in this case, the Apex Court was dealing with the quasi-judicial bodies like the
Disciplinary Committees and the question was whether the appellant had ""misconducted"" himself within the meaning of Section 35 of the
Advocates Act. The observations would certainly have to be read in the light of the facts which are totally distinct and different from the facts
involved.
Lastly, reliance was placed on the Full Bench Judgment of this Court reported in Aluminium Industries Ltd. Vs. Minerals and Metals Trading
Corporation of India Ltd. and Others, , where the Full Bench has held that in the contractual matters also, there is a power of judicial review to
decide the validity of such contract on the anvil of Article 14 of the Constitution. Heavy reliance is placed on the observations in paragraphs 47 and
48, where the Court has spoken the plenary jurisdiction of this Court under Article 226 of the Constitution. In paragraph 47, the Full Bench
observes:
While reiterating that ordinarily writ petitons cannot be entertained under Article 226 of the Constitution of India for enforcement of terms of
contract, or to claim damages arising out of concluded contract for breach of contract, one of the parties being the State or Authority to such
contract, we hold that the jurisdiction to exercise the power of judicial review under Article 226 of the Constitution is not totally curtailed or
absolutely excluded in examining and testing the validity of State action, even in such matters in extraordinary cases as to whether the requirement
of Article 14 of the Constitution were satisfied by the State/Authority, though ordinarily the courts may not entertain writ petitions, and decline to
grant relief exercising powers under Article 226 of the Constitution for enforcement of terms of contract or to get remedy for a breach of contract
on the basis of concluded contract, one of the parties being State or authority to such contracts.
There can be no doubt about the correctness to these observations. However, it cannot be forgotten that there is no question of breach of Article
14 of the Constitution in the present scenario which has already been discussed. The decision of the Full Bench has turned entirely on the back
drop of the breach of Article 14 of the Constitution on the part of the State where the State is one of the contracting parties. I have already found
that there is no such breach in the present case. The ratio, therefore, will not apply to the present case. This is besides the fact that in that case,
admittedly, there were no disputed questions of facts arising for consideration. Such is clearly not the case here as there are number of disputed
questions of facts in the present writ petition.
In view of all the above discussions, it has to be held that the present writ petition is not maintainable and would have to be dismissed and
accordingly, it is dismissed. No costs. W.M.P. Nos. 13049 of 1998 and 17320 of 1999 are dismissed.
In respect of the same Hindusan Petroleum Corporation Ltd., the First Bench of this Court presided over by the Hon''ble Mr. K.G.
Balakrishnan, the Chief Justice (as His Lordship then was) in the judgment, dated 01.02.2000 in W.A. No. 2609 of 1999 in S. Sitaraman v.
Hindustan Petroleum Corporation Ltd. and Anr. after analysing the above said judgments held as follows:
From the aforesaid decisions, it is clear that in the matter of non-statutory contracts, the provisions of contract not to be agitated in a writ
petition and under such circumstances, the remedy of judicial review would be available only if it is proved that the action taken was arbitrary and
actuated by mala fides. It has been held by the learned single Judge that the action taken by the respondent Company was not either arbitrary or
mala fide. The respondent has alleged certain violations of the terms of the agreement. Whether the appellant, in fact, violated these terms, is a
question of facts to be decided on the basis of the evidence to be adduced before the appropriate authority. Admittedly, there is an arbitration
clause in the agreement and the appellant, at one point of time, in his explanation stated that if there is any dispute between the parties, the matter
should be referred to the arbitration and the respondent cannot unilaterally decide the matter. Merely because detailed reasons are not given in the
notice terminating the contract, it may not give rise to a cause of action to the appellant to seek cancellation of the same. The appellant was aware
of all the facts and there were series of correspondence between the appellant and the respondent regarding the nature of the alleged violation of
the various terms of the contract. When there are disputed questions of fact and the contract itself provides for a mode of settlement of disputes,
the appellant is not entitled to invoke Article 226 of the Constitution for judicial review and the remedy of the appellant lies elsewhere.
The line of judgments in this regard are enormous, continuing and consistently. Applying the said categorical judicial pronouncements of the
Apex Court through out, there is absolutely no difficulty to conclude on the factual matrix of this case that the petitioner is not entitled for any relief
claimed in this writ petition.
For all the above said reasons, the writ petition fails and the same is dismissed. However, this order does not prevent the petitioner to enforce
its right in the arbitration clause of the agreement in the manner known to law. No costs. Consequently, M.P.(MD) Nos. 1 and 2 of 2008 are
closed.