A. B. SAHARYA ( 1 ) THE basic question that has arisen in this petition under Article 226 of the Constitution of India is whether order dated 24th of April 1993 passed by the respondent Indian Airlines Corporation (hereinafter referred to as the IAC) terminating sales agency agreement of the petitioner can be sustained in law. ( 2 ) THE petitioner is a registered partnership firm of three brothers, namely, Ajay Kumar Moria. Vijay Kumar and Sandeep Kumar Moria. They are the sons of R. L. Moria, who is working as Superintendent in the Stores Department of the IAC. By a letter dated 27th of November 1991, the IAC appointed the petitioner-firm, as its sales agent at NOIDA, on standard terms and conditions contained in the agreement known and described as Domestic Passenger Sales Agency Agreement. ( 3 ) ACCORDING to the petitioner, the firm has been acting as the authorised sales agent with full satisfaction to the passengers and great deal of profit to the IAC, and there is not even a single complain of any kind whatsoever against the firm in respect of its performance or otherwise. On 10th of March 1993, following the arrest of one Umesh Bhatia, a businessman, claiming himself to be the son of an employee of the IAC, travelling with his wife on free complimentary tickets by Air India flight No. 404 to Singapore, a racket came to light. Umesh Bhatia disclosed that he got the complimentary tickets from one Arun Vohra who was an employee of the IAC. Sandeep, one of the partners of the petitioner- firm, was also travelling by the same flight to Singapore. In a bid to cover up the racket and protect the real culprits. some of whom are highly placed officials of the IAC and Air India, an attempt was made to make R. L. Moria a scapegoat. False allegations were made that Urnesh Bhatia, Sandeep and their wives were travelling together, and that R. L. Moria was the person who had arranged for their tickets. Further, the impugned order terminating the petitioner s agency agreement was passed, without giving any opportunity of being heard and without any rhyme or reason, as a part of the witch hunt. ( 4 ) IN the reply filed on behalf of the respondents, it is stated, inter alia. Further, the impugned order terminating the petitioner s agency agreement was passed, without giving any opportunity of being heard and without any rhyme or reason, as a part of the witch hunt. ( 4 ) IN the reply filed on behalf of the respondents, it is stated, inter alia. that on 10th of March 1993, Sandeep and his wife Anita were (ravelling to Singapore on free tickets provided on account of their relationship with R. N. Moria, that enquiries by the Enforcement Directorate revealed that Umesh Bhatia and his wife Sonu Shankar were travelling along with them on complimentary tickets obtained by R. L. Moria by manipulating documents, and that Sandeep Moria was also suspected to be acting in connivance with Mr. Umesh Bhatia when he was arrested by the Enforcement Directorate for being in posscssion of foreign currency. A copy of the letter dated 23rd of March 1993 stated to have been received by the respondents from the Directorate of Enforcement in this regard is annexed and marked as Annexure R-l. It is also stated, on the basis of a newspaper report (Annexure RA), that the said incident got detailed coverage in the national newspapers and that the reputation of the IAC "suffered tmendously" on account of the involvement of Sandeep Moria. On these averments, the case set up on behalf of the respondents is then stated in para 6 of the reply as follows:- "that from the aforesaid, it is clear that Mr. Sandeep Kumar Moria, partner of the Petitioner company was involved in criminal acts involving FERA violation. It is in these circumstances that the Respondent Corporation was forced to act. Under clause 15b of the Agreement between the parties, the Respondent Corporation thought it fit to terminate the Domestic Passenger Agency Agreement of the Petitioner-Corporation. The termination was done in public interest and in order to protect the reputation and fair name of the Respondent Corporation. . . . . " ( 5 ) IN the rejoinder-affidavit filed on behalf of the petitioner, the facts stated in the counter-affidavit are denied. Further, it is pleaded that the Director (Vigilance) of the IAC, who conducted an enquiry, has given a clean chit to R. L. Moria. ( 6 ) FIRST, let us deal with the preliminary objection raised by the learned counsel appearing on behalf of the respondents. Further, it is pleaded that the Director (Vigilance) of the IAC, who conducted an enquiry, has given a clean chit to R. L. Moria. ( 6 ) FIRST, let us deal with the preliminary objection raised by the learned counsel appearing on behalf of the respondents. He urged that the claim of the petitioner arises out of a contract and that in contractual matters the Court should not interfere in the exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India. We find no substance in this objection. It is now well settled by a series of judgments of the Supreme Court that every State action must be justified on the touchstone of Article 14, which is basic to the rule of law, and in order to survive, it must not be susceptible to the vice of arbitrariness which is the crux of Article 14 of the Constitution of India. Arbitrariness is the very negation of the rule of law. Satisfaction of this basic test in every State action is sine qua non to its validity. Suffice it to cite Delhi Transport Corporation V. DTC Mazdoor Congress, air 1991 SC 101 , and Kumari Shrilekha Vidyarthi and others V. Stale of U. P and others, (1991) 1 SCC 212 . ( 7 ) NOW, turning to the merits, the whole case of the respondents is based upon the newspaper report published on 20th of March 1993 and the letter dated 23rd of March 1993 from the Deputy Director, Enforcement Directorate. Government of India. In the newspaper report, the name of Umesh Bhatia has been specifically mentioned as the person who was arrested just before boarding Air India flight No. 404 for Singapore and from whom foreign currency worth about Rs. 18 lacs was seized. It talks about a racket in complimentary Indian Airlines and Air India tickets said to be issued by senior staff of both the said airlines on a reciprocal basis. It is said that in volvement of a senior airlines manager, two personal assistants and very senior officers in both the airlines is suspected, "a bigger fish" is suspected to be "the mastermind behind this racket and involved in illegal foreign currency transactions", and that a lower functionary of the IAC is also suspected and that his "son was reportedly accompanying Umesh to Singapore". But, what is important to note is that the names of Sandeep, his wife Anitaand R. L. Moria are not mentioned anywhere in the said newspaper report. In the absence of the name of any member of the Moria family or the petitioner firm, we are unable to appreciate the plea taken by the respondents, on the basis of this newspaper report, that on account of involvement of Sandeep, the reputation of the IAC suffered. ( 8 ) WE have also perused Annexure R-1. which is a copy of the letter dated 23rd of March 1993 sent by the Enforcement Directorate to the Director (Vigilance), Indian Airlines. It is stated in this letter that on 10th of March 1993, Umesh Bhatia was arrested and "foreign currencies were seized from him", and that he was holding a complimentary ticket No-098-4413661829. Further, it is slated: "at the relevant time when Umesh Bhatia was apprehended, he was found in the company of:- 1. Smt. Sonu Shankar holding Air India complimentary ticket No. 098-4413661830. 2. Shri Sandeep Kumar holding Air India complimentary ticket No-098-4413659000. 3. Smt. Anita Moria holding Air India complimentary ticket No. 098-4413659004. "it is also reported in the letter, that during the course of enquiries, statements of Shri Mahesh Chander Sahdev and Baldev Kumar of Air India were recorded. The former stated that he processed the matter and issued the earlier mentioned tickets on different dates and handed over the same to Sandeep who had taken more tickets in a similar manner on different occasions and that Sandeep was introduced to him by R. L. Moria who was working in the IAC. Baldev Kumar stated that one A. K. Mahajan had sent Sandeep to him and asked him to clear "the interline request" in respect of the said tickets and hand over the letters to Sandeep and that he accordingly did so. It is stated, at the end of the letter, that the matter was being brought to the notice of the addressees, namely, Director (Vigilance) IAC and Vigilance Manager Air India, for further action. It is stated, at the end of the letter, that the matter was being brought to the notice of the addressees, namely, Director (Vigilance) IAC and Vigilance Manager Air India, for further action. ( 9 ) IT has been vehemently urged before us, as is also pleaded in the counteraffidavit, on the basis of this letter that: (1) all lhe four complimentary tickets in the name of Umesh Bhatia, his wife Sonu Shankar, Sandeep and his wife Anita "were obtained by R. L. Moria by manipulating documents; (2) Sandeep "was involved in criminal acts involving FERA violations", and (3) the reputation and fair name of the IAC suffered because of the reported involvement of Sandeep, who is a partner of the petitioner firm, in criminal acts. In our opinion, none of these inferences can be reasonably drawn on a fair reading of the Enforcement Directorate letter dated 23rd of March 1993. ( 10 ) IT is nowhere suggested by the Enforcement Directorate in the said letter that the complimentary tickets were obtained by R. L. Moria by manipulating documents or otherwise. Umesh Bhatia had specifically stated that he had purchased the tickets from one Arun Vohra of Indian Airlines. Neither Mahesh nor Baldev had stated that the tickets were obtained by R. L. Moria. What Mahesh said was that he had issued the said tickets on different dates, that he had handed over the same to Sandeep, that Sandeep had collected from him some more tickets, and that Sandeep was introduced to him by R. L. Moria. This statement has to be considered in the light of lhe facts that R. L. Moria is working with the IAC, and that Sandeep is his son and has been carrying on the business of authorised travel agent of IAC. Nothing can be said to be wrong if Sandeep was initially introduced to Mahesh by R. L. Moria and Sandeep collected the passenger tickets on this particular occasion just as he used to do in the past in the ordinary course of his business. In respect of the transaction in question, all that Mahesh said was that the tickets were issued by him on different dates and were handed over to Sandeep. In respect of the transaction in question, all that Mahesh said was that the tickets were issued by him on different dates and were handed over to Sandeep. Indeed, a bare look at the ticket numbers noted above shows that the two tickets in the name of Umesh Bhatia and his wife Sonu Shankar bear consecutive numbers and the same must have been issued on a day or at a point of time different from that when the other two tickets were issued in the name of Sandeep and his wife Anita. This is obvious from the mere fact that a number of other tickets were issued in between. Likewise, nothing of the sort suggested by the respondents can be read into the statement of Baldev who stated that he cleared the interline request on the asking of A. K. Mahajan. Only the clearance letters were handed over to Sandeep. ( 11 ) THE Enforcement Directorate has nowhere even suggested in the said letter that Sandeep or any other member of the Moria family was at all involved in the criminal activity, namely, violation of foreign exchange regulations. No doubt, it is stated in the letter that Umesh Bhatia was found in the company of Sandeep and his wife Anita. But, no foreign currency was found in possession of or seized from either of them. Statement of the fact that Sandeep and Anita were found in the company of Umesh Bhatia, cannot be stretched so far as to suggest that they were accomplices, or, in any way, connected with Umesh Bhatia in the commission of the alleged offence. ( 12 ) THEREFORE, on the basis of this material, the pleas taken in the counter-affidavit cannot at all be sustained, and it cannot be said that Sandeep was involved in FERA violations, and that on account of Sandeep s involvement, in any way, the reputation or fair name of the IAC suffered. The impugned action taken on this basis is obviously unreasonable and arbitrary. ( 13 ) EVEN otherwise, in the facts and circumstances of the case, the impugned action is wholly unfair. The impugned action taken on this basis is obviously unreasonable and arbitrary. ( 13 ) EVEN otherwise, in the facts and circumstances of the case, the impugned action is wholly unfair. Even if the said newspaper report and the letter dated 23rd of March 1993 received from the Enforcement Directorate be taken to indicate involvement of Sandeep in any unlawful activities and if it was felt that Sandeep s involvement adversely affected the reputation and fair name of the IAC, the respondents ought to have given to the petitioner firm notice of all the available facts, circumstances and material, and an opportunity to show cause against the proposed action, before taking the drastic action of termination of the agency agreement. ( 14 ) FOR the exercise of the power of suspension or termination of the agency under Clause 15 of the Agreement, certain conditions specified therein must exist. For ready reference. Clause 15 is reproduced below:- "15 (a) If the agent shall at any time default in observing and performing any of the provisions of this Agreement or shallbecome bankrupt or make any assignment for the benefit of or enter into any agreement or compromise with its creditors or go into liquidation or suffer any of its goods to be taken in the execution or if it ceases to be in business as an agent for sale of air Passenger transportation, this Agreement may at the option of the Airlines be terminated or its operation suspended forthwith and for such period as the Airlines may decide and the Airlines may without prejudice to any of its rights under this Agreement take possession of any documents and property belonging to the Airlines. b) The Agreement may be terminated or suspended as between the Agent and the Airlines at any time by notice in writing from either to the other; such notice to take effect immediately upon its receipt or as otherwise provided herein subject to the fulfilment by each of all the obligations accrued prior to the receipt of the such notice. Upon suspensionor termination of this Agreement all unused documents of the Airlines shall immediately be returned by the Agent to the Airlines, together with all moneys due and payable to the Airlines hereunder and a complete and satisfactory accounting shall be rendered. Upon suspensionor termination of this Agreement all unused documents of the Airlines shall immediately be returned by the Agent to the Airlines, together with all moneys due and payable to the Airlines hereunder and a complete and satisfactory accounting shall be rendered. " ( 15 ) THE exercise of this power has serious civil consequences affecting the rights of a duly constituted agent to carry on the business in accordance with the terms and conditions of the Agreement. The observance of the rules of natural justice and the requirement to give a pre-decisional opportunity to the affected party to explain its case is an essential requirement of fair play. The rules of natural justice have, therefore, to be read into Clause 15 of the Agreement. ( 16 ) IT was contended by learned counsel for the respondents that the provision made for termination "to take effect immediately" excludes pre-decisional opportunity of hearing in respect of matters falling under Clause 15 of the agreement. We find no merit in this plea. A bare perusal of sub-clause (b) shows that a discretion is given to the concerned authority to direct that the notice of termination would take effect immediately on its receipt or otherwise. This clause clothes the authority with two kinds of power. One is the power to suspend the agreement and the other is to terminate the agreement. Obviously, it is open to the concerned authority to suspend operation of the agency, pending enquiry into alleged contravention of any of the stipulated conditions, rather than proceeding to terminate the agreement forthwith. In the facts and circumstances of the present case, in the absence of any emergency, we see no reason for resort, straightaway, to the extreme step of unilateral termination of the agreement, without giving to the petitioner pre- decisional opportunity of hearing. The impugned action is, therefore, unfair. ( 17 ) FURTHERMORE, there appears to be no justification for termination of the agency agreement of the petitioner Firm merely because the three partners of the firm are the sons of R. L. Moria, on the allegation that he was involved in the racket of free complimentary passenger tickets of the IAC and Air India being issued to unauthorised persons by the senior staff of both the airlines on a reciprocal basis. Obviously, R. L. Moria, who is said to be- working as a Superintendent in the Stores Department in the IAC, would be too insignificant a person to be able to play any meaningful role in such a racket, if any, involving not only the IAC but also the other international airline, namely. Air India. Even if the father was suspected of misconduct, appropriate action should have been taken against him. His sons, who are carrying on their own independent business in the name and style of the petitioner firm, cannot be made to suffer, particularly when R. L. Moria has been given a clean chit after an enquiry was conducted by the Director (Vigilance) of the IAC. In whatever way we may look at the matter, the impugned action appears to be wholly unjust and unwarranted. ( 18 ) THEREFORE, we hold that the impugned order dated 24th of April 1993 passed by the respondents, terminating the Sales Agency Agreement of the petitioner, is wholly arbitrary, unreasonable, unfair and unjust. Consequently, the said order is hereby quashed. ( 19 ) THE writ petition is allowed with costs. Counsel s fee Rs. 5,500. 00.