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Allahabad High Court · body

2000 DIGILAW 238 (ALL)

KAMLA MOTORS AND ENGINEERING WORKS v. I. B. P. CO. LIMITED

2000-02-09

O.P.GARG, S.K.JAIN

body2000
O. P. GARG, J. ( 1 ) THE petitioner. M/s. Kamla Motors and Engineering Works, which is a partnership firm, is engaged in the business of sale of Motor Spirit (for short ms), High Speed Diesel (for short hsd) and lubricants. The firm entered into an agreement dated 21. 12. 1972 as a licensee of indo-Burma Petroleum Company Ltd. , which was subsequently taken over by the Government of india through Acquisition Act and is now called as IBP Co. , Ltd. , for sale of the aforesaid-products. The petitioner has a petrol pump at Bridh Ghat, Gorakhpur. A copy of the agreement dated 21. 12. 1972 containing the terms and conditions, on which both the parties have placed reliance, is Annexure-2 to the writ petition. Clause 9 (e) of the agreement requires the petitioner : "to take every reasonable precaution against contamination of the products supplied by the company by water, dirt or other things injurious to their quality and not in any way directly or indirectly alter the companys standard quality of products as delivered. The company shall have the right to exercise at their discretion quality control measures for products marketed by the company. " By virtue of the provision made in clause 9 (s) of the agreement, the respondent-company is at liberty to stop all supplies to the licensee for such period as the company may think fit, if there is a breach of any of the terms and conditions of the agreement by the licensee. ( 2 ) IT appears that a sample of MS was drawn from the retail outlet of the petitioner on 29. 11. 1999 by a Joint Inspection Team. The sample was sent for test report. The MS sample taken from the retail outlet of the petitioner did not meet the specifications in respect of Research Octane number (popularly known as ron ). It was noticed that the petitioner committed breach of terms and conditions contained in clause 9 (e) of the dealership agreement as well as violated rules and the guidelines, and accordingly the impugned order dated 19. 12. 1999. Annexure-1 to the writ petition was passed whereby the petitioner was required to explain the reasons for failure of the sample. Sales and supplies of MS at the retail outlet of the petitioner were also suspended w. e. f. 16. 12. 1999. 12. 1999. Annexure-1 to the writ petition was passed whereby the petitioner was required to explain the reasons for failure of the sample. Sales and supplies of MS at the retail outlet of the petitioner were also suspended w. e. f. 16. 12. 1999. It is this order which has been challenged in the present petition on a variety of grounds. In substance, the case of the petitioner is that the MS sample, which was taken on 29. 11. 1999 from Its retail outlet, was the same as was supplied by the respondent-company and that the petitioner has taken all reasonable precautions against the contamination of the products as supplied by the company and if the sample has failed in meeting the specifications in respect of RON, it was not on account of any adulteration on the part of the petitioner. It is averred that the MS sample has withstood the test of scrutiny in all other respects, except that it allegedly failed to meet RON test for which the respondent-company has no facility. The petitioner asserts that it has not committed breach of any of the terms and conditions contained in the agreement, or violated the relevant Control orders and guidelines issued by the Central Government and other authorities. ( 3 ) DURING the pendency of this petition, the respondent also suspended the supply and sale of hsd w. e. f. 5. 1. 2000. A copy of the said order, which is also the subject-matter of challenge in the present writ petition, has been brought on record as Annexure-S. A. 1 with the supplementary affidavit filed in support of the amendment application. As the things stand, the petitioner has now come to challenge two separate orders dated 16. 12. 1999 and 5. 1. 2000 by which the supply and sale of MS and HSD have been suspended. ( 4 ) ON behalf of the respondents, a counter-affidavit has been filed by Sri Abhimanyu Gupta, divisional Manager, IBP Company Ltd. , Allahabad. Repelling the averments made in the writ petition, it is stated that the various Government orders and guidelines relied upon by the petitioner stand superseded by the subsequently enacted Motor Speed and High Speed Diesels (Regulation of Supply and Distribution and Prevention of Malpractice) Order, 1998, (hereinafter referred to as the Control Order, 1998) which came into force w. e. f. 28. 12. 12. 1998 and that under the said Control Order the Octane Number of MS is also required to be checked to ascertain purity by RON, test. It is maintained that since the sample taken from the retail outlet of the petitioner was adulterated as it did not conform to the RON specifications, the respondent-company was justified in initiating action against the petitioner in terms of clause 9 (s) of the agreement and to suspend the supply and sale of both MS as well as HSD. In reply to the counter-affidavit, a rejoinder-affidavit has also been filed by the petitioner. ( 5 ) HEARD Sri Bharatji Agarwal, Senior Advocate, assisted by Sri Tarun Agarwal, Advocate, for the petitioner and S/sri Vineet Saran and Krishna Murari appearing on behalf of, the respondents at considerable length. Since the entire material is available on record, this writ petition is being disposed of finally at this stage with the consent of the learned counsel for the parties. ( 6 ) AT the threshold of the hearing, a preliminary objection was raised by Sri Vineet Saran, learned counsel for the respondent-company that the present petition under Article 226 of the constitution of India, which involves interpretation of the various clauses contained in the agreement/contract entered into between the petitioner and the respondent-company is not maintainable and the proper remedy of the petitioner for the relief of breach of contract, if any, is to file a suit for damages. It is an indubitable fact that the respondent-company is an organ or an instrumentality of the State as contemplated under Article 12 of the Constitution of India and consequently Sri Bharatji Agarwal urged that the writ petition for the relief claimed is undoubtedly maintainable. It was urged that any authority covered under Article 12 cannot act arbitrarily even in contractual matters and must act only to further public interest. The point was further developed by making submission that the respondent-company being a pubic body even in respect of its dealing with its customers/dealers, it must act in public interest and any infraction of their duty is amenable to examination either in civil suit or in writ jurisdiction. It is true that if a Government policy or action, even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional. It is true that if a Government policy or action, even in contractual matters fails to satisfy the test of reasonableness, it would be unconstitutional. In this connection, a reference may be made to the celebrated decisions of the Apex Court in M/s. Radha Krishna Agarwal v. State of Bihar, AIR 1977 SC 1496 ; K. D. Shetty v. International Airport Authority of India. (1979) 3 SCC 489 ; kasturi Lal Laxmi Reddy v. State of J. and K. , (1980) 4 SCC 1 ; Life Insurance Corporation of india v. Escorts Ltd. . (1986) 1 SCC 264 : M/s. Dwarkadas Marfatia and Sons v. Board of trustees of the Port of Bombay. (1989) 3 SCC 293 ; Mahabir Auto Stores v. Indian Oil corporation. AIR 1990 SC 1031 . The point was succinctly made out by the Supreme Court in the case of Som Prakash Rekhi v>. Union of India. (1981) 1 SCC 449 , reiterated in M. C. Mehta v. Union of India, (1987) 1 SCC 395 , wherein It was observed that: "it is dangerous to exonerate corporations from the need to have constitutional conscience : and so, that interpretation, language, permitting, which makes a Governmental agencies, whatever their mien, amenable to constitutional limitations must be adopted by the Court as against the alternative of permitting them to flourish as an imperium in imperfo. " ( 7 ) AS regards the power of judicial review, the Apex Court in E. P. Royappa v. State of Tamil nadu, (1974) 4 SCC 3 ; Maneka Gandhi v. Union of India. (1978) 1 SCC 248 and Ajay Hasia v. Khalik Mujib Sehravardi, (1981) 1 SCC 722 , laid down that where there is arbitrariness in State action. Article 14 springs in and judicial review strikes such an action down. Every action of the executive authority must be subject to rule of law and must be Informed by reason. So, whatever be the activity of the public authority. It should meet the test of Article 14. Judicial review is permissible only on the established grounds of mala fide, arbitrariness, or unreasonableness of the Wednesbury variety as has been laid down in Delhi Science Forum v. Union of India, (1996) 1 SCC 260 ; New Horisons Ltd. v. Union of India. It should meet the test of Article 14. Judicial review is permissible only on the established grounds of mala fide, arbitrariness, or unreasonableness of the Wednesbury variety as has been laid down in Delhi Science Forum v. Union of India, (1996) 1 SCC 260 ; New Horisons Ltd. v. Union of India. (1995) 1 SCC 478 ; asia Foundation and Constructions Ltd. v. Trafalgar House Construction (1) Ltd. , (1997) 1 SCC 738 ; Tata Cellular u. Union of India. (1994) 6 SCC 651 ; Fertilizer Corporation Kosigar Union (Regd.) v. Union of India, (1981) 1 SCC 568 and Raunaq International Ltd. v. I. V. R. Construction Ltd. and others, (1999) 1 SCC 492 . ( 8 ) SRI Vineet Saran pointed out that he is not challenging the application of Article 14 of the constitution if the action of the State or its Instrumentality is arbitrary and discriminatory at the stage of granting or entering into a contract. He clarified that what he submits is that after a contract has been validly entered into, the breach of the various terms and conditions of the contract. If any, cannot be made the subject-matter of writ jurisdiction, Emphatic reliance was placed by both the parties on the observations made by the Apex Court in the case of M/s. Mahabir Auto Stores, (supra ). In that case, it has been laid down with all specificity that the state acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with Individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of the State organ under Article 14 can be checked. But, Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. A close reading of the aforesaid decision would make it clear that the operation of Article 14 comes Into place only at the stage of entering or not entering in contracts with Individual parties and once the contract has been entered into, the rights of the parties shall be governed by the terms and conditions to which they are subject under the agreement. ( 9 ) ON the strength of the aforesaid premise, Sri Vineet Saran assiduously argued that the present petition under Article 226 is not maintainable for the breach, if any, of the terms of the agreement as the proper remedy of the petitioner. If at all, available is to file a civil suit for damages. This aspect of the matter may appropriately be dealt with after sifting the real controversy raised in this petition. ( 10 ) THE petitioner undoubtedly is receiving supplies for selling MS and HSD under an agreement dated 26. 12. 1972. (Annexure-2 ). An unfettered discretion has been conferred upon the respondent company to suspend the sale and supply of the aforesaid Items under clause 9 (s) if there is breach of the agreement. The Impugned orders dated 19. 12. 1999 (Annexure-1) and 5. 1. 2000 (Annexure-S. A. 1) have been passed for the stoppage of supply and sale at the retail outlet of the petitioner primarily on the ground that the MS sample taken on 29. 11. 1999 did not conform to the RON test, meaning thereby the MS which was being sold at the retail outlet of the petitioner was adulterated. There is no dispute about the fact that the parties are governed by the terms of the agreement as well as the Control Order, 1998 made in exercise of power conferred under Section 3 of the Essential Commodities Act, The expression adulteration as defined in the control Order, 1998 means the introduction of any foreign substance into motor spirit/high speed diesel illegally/unauthorisedly with the result that the product does not conform to the requirement Indicated in Schedule 1. The expression malpractice includes adulteration. If the ms sample was found to be adulterated, it would be a case of malpractice on the part of the petitioner and in that event, the respondent-company is entitled to take action under clause 9 (s)for breach of the terms of agreement. ( 11 ) A factual aspect of the controversy has been raised in this writ petition that the MS sample of the petitioner has withstood the density test and since the respondent-company does not have the equipment to check RON, the petitioner cannot be blamed if there is any variation of RON in the ms sample. ( 11 ) A factual aspect of the controversy has been raised in this writ petition that the MS sample of the petitioner has withstood the density test and since the respondent-company does not have the equipment to check RON, the petitioner cannot be blamed if there is any variation of RON in the ms sample. It has been scientifically proved on chemical analysis that the density level of diesel is higher than that of kerosene and density of kerosene is higher than that of petrol and, therefore, if kerosene is mixed with diesel, the density of such adulterated product would be less than the density of pure diesel. However, by mixing some other articles, it is possible to again raise the density of this adulterated product to the level of diesel. Therefore, by mixing more than one item to diesel, its density can be brought back to the prescribed standard. Similarly density of petrol will become higher by mixing kerosene but it can be brought back to the prescribed standard by mixing another item having lower density. In Krishna Kumar v. Senior superintendent of Police, Bulandshahr, 1998 (36) ACC 630, a Division Bench of this Court examined the matter and observed that it can never be the intention of Legislature that even though two or more foreign substances have been mixed with diesel but if the product so made conforms to the density standard, it should not be treated as a malpractice or that it does not amount to violation of the provisions of the Control Order. The observations of the Division bench in this regard may profitably be quoted as follows : "to our mind the correct and logical way to interpret clause 2 (a) will be to divide it into two parts. The introduction of any foreign substance in petrol or diesel illegally/unauthorisedly simpliciter would amount to adulteration even though the product may conform to density standard as mentioned in Schedule 1 of the Control Order. If the product does not conform to the density requirement Indicated in Schedule 1 it will also amount to adulteration. In order to find out whether any foreign substance has been mixed with petrol or diesel it is absolutely necessary to perform other tests like determination of flash point, recovery at different temperatures, viscosity and flow, etc. . . . . . In order to find out whether any foreign substance has been mixed with petrol or diesel it is absolutely necessary to perform other tests like determination of flash point, recovery at different temperatures, viscosity and flow, etc. . . . . . The contention raised on behalf of the petitioner that it is not responsible for the failure of the sample to meet the RON specifications cannot be accepted on the mere ground that the RON facilities are not available to the respondent-company and that the sample was taken from the ms, as supplied by the respondent-company. This submission is wide off the mark. Besides the density test, RON test, of late, has come to be specified in Schedule 1 of the Control Order. 1998. RON test is a most sophisticated modern test to gauge the purity of the product. It is one of the tests specified in Schedule 1 to ascertain the quality of the petroleum products. In paragraph 21 of the counter-affidavit of the respondent-company, it has been specifically mentioned that though the IOC at Allahabad has no facility to undertake RON test, samples collected from the retail outlet of the petitioner were sent to Delhi Terminal Laboratory, New Delhi of the Indian oil Corporation which has the facility to undertake the RON test. As per Schedule 1 of the control Order. 1998, RON should be 87 whereas the samples drawn from the retail outlet of the petitioner, as tested with the RON specifications, was found to be 85 as would be apparent from the letter of Dy. Manager (Lab ). Indian Oil Corporation Ltd. , (Marketing Division), dated 14. 13. 1999, Annexure-C. A. 1. As many as 7 samples of different dealers were sent for RON test. Out of seven samples, the sample number L-3594 concerning the petitioner- establishment did not meet the requirements of RON as it was 85. 0. From this fact, it was concluded that the sample of the MS taken at the retail outlet of the petitioner was adulterated. The submission on behalf of the petitioner that it is not guilty of malpractice as the sample was taken from the supplies made by the respondent-company is otiose. 0. From this fact, it was concluded that the sample of the MS taken at the retail outlet of the petitioner was adulterated. The submission on behalf of the petitioner that it is not guilty of malpractice as the sample was taken from the supplies made by the respondent-company is otiose. The Government Corporations, such as the respondent, are not expected and will not supply sub-standard or adulterated material and it can be presumed that the product supplied by them would be pure and would conform to the standards laid down. If the supplies made by the respondent-company were deficient in RON specifications, they should have been in respect of all the seven dealers and not only in case of the petitioner. Under clause 9 (e) of the agreement, it is for the dealer to take all reasonable precautions against the contamination or adulteration of the products supplied by the company. The report of the Laboratory to the effect that the MS sample was adulterated is sufficient to hold that the petitioner has Indulged in malpractice ; an expression, which has been defined in the Control Order, 1998. In Krishna Kumars case, (supra ). It has been held that the report of the analyst is conclusive and admissible without any proof. ( 12 ) A faint suggestion was made on behalf of the petitioner that the MS sample taken from the outlet of the petitioner is in conformity with the executive orders, issued by the State government, and the circular letters/guidelines issued by the respondent-company and, therefore, the petitioner cannot be branded of having committed any malpractice. The various government orders and the guidelines which have been brought on record and have been relied upon by the learned counsel for the petitioner came into being prior to the commencement of control Order, 1998. Since the RON test has been specified and has come into force w. e. f, 28. 12. 1998, the earlier orders and guidelines are of no consequence and have to be ignored. Since the RON test has been specified and has come into force w. e. f, 28. 12. 1998, the earlier orders and guidelines are of no consequence and have to be ignored. A statutory rule is also a delegated legislation and its position came to be explained in a constitution Bench decision of the Apex Court in State of U. P v. Babu Ram Upadhyay, AIR 1961 SC 751 , in which it was observed that the rule made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction or obligation. Similar view was taken in the case of State of Tamil Nadu v. M/s. Hind Stores, air 1981 SC 711 . The provisions of the Control Order. 1998 shall, therefore, have the overriding effect and prevail over the earlier Government orders/circulars and guidelines. ( 13 ) THIS Court cannot act as an appellate authority and examine the details of terms of contract. The primary concern of this Court is to see whether there is any infirmity in the decision making process. The above observations are fortified from the decision of the Apex Court in Sterling computers v. M. N. Publications Ltd. and others, AIR 1996 SC 51 . M/s. Mahabir Auto Stores, (supra), was a case where there was an abrupt stoppage of supply of lubricants to the dealer by the Indian Oil Corporation. No notice or intimation was given to the dealer and It was in these circumstances that the action of the company was held to be arbitrary. In the instant case, the action of the respondent-company cannot be faulted on any ground as the supply and sale of MS and HSD have been suspended for a specified period of 45 days. The impugned order, which is short-lived in nature, has been passed as a corrective measures with a view to act as a deterrent for others. If the malpractices of the dealers are ignored, in that event, they would feel emboldened and resort to further malpractices including adulteration, to the serious detriment of the public interest. The impugned order, which is short-lived in nature, has been passed as a corrective measures with a view to act as a deterrent for others. If the malpractices of the dealers are ignored, in that event, they would feel emboldened and resort to further malpractices including adulteration, to the serious detriment of the public interest. Where the decision has been taken bona fide and a choice has been exercised on legitimate considerations, and not arbitrarily, there does not appear to be any reason why the court should entertain a petition under Article 226 of the Constitution of India. Any other inference in the cases like the present one would seriously Jeopardise the public interest. ( 14 ) WE would be doing well in not pronouncing upon any of the several contentions raised in the writ petition by both the parties and would feel satisfied by merely stating that since the MS sample did not conform to the RON specification, the respondent-company was well within its rights to suspend the supply and sale under clause 9 (s) of the agreement. As a matter of fact, a complete answer to the various submissions made on behalf of the petitioner is to be found in a decision of the Apex Court in Stale of U. P. and others v. Brij and Roof India Co. Ltd. , (1996) 6 scc 22 . In which the controversy was dealt with in the light of the different set of facts but nevertheless, the observations made by the Apex Court are applicable on all fours to the facts of the present case. In that case, the controversy raised was with regard to a private contract. It was observed that the remedy of writ petition under Article 226 of the Constitution adopted by the respondent of that case was misconceived. He was not entitled to any relief in the writ jurisdiction, firstly for the reason, the contract between the parties is a contract in the realm of private law. It is not a statutory contract. It is governed by the provisions of the Contract Act, or, may be also by certain provisions of Sales of Goods Act. Any dispute relating to interpretation of the terms and conditions of such contract cannot be agitated and could not have been agitated in a writ petition. It is not a statutory contract. It is governed by the provisions of the Contract Act, or, may be also by certain provisions of Sales of Goods Act. Any dispute relating to interpretation of the terms and conditions of such contract cannot be agitated and could not have been agitated in a writ petition. Secondly, where there has been a breach of the terms of the contract, it is not a matter to be agitated in the writ petition. That is again a matter relating to the interpretation of a term of contract and should be agitated before Arbitrator or the civil court, as the case may be. ( 15 ) A short and swift reference may also be made to the submission of the learned counsel for the petitioner that there was hardly any justification for suspending the supply and sale of HSD as no sample of this oil was taken or was found to be adulterated. This submission does not hold good for one simple reason that the agreement in question is composite one. The right to receive supply and sale of MS and HSD emanates from the same agreement and in the agreement, it has been mentioned that if there is breach of any one of the conditions, necessary action against the dealer may be taken under clause 9 (s) of the agreement. Since MS sample failed to withstand the test of scrutiny with regard to RON specification, supply and sale of HSD covered by the same agreement were also suspended. The two articles of supply and sale cannot be segregated as the rights of the petitioner flow in respect of both the commodities under one and the same agreement. ( 16 ) IN view of the various observations made in the aforesaid case, the present writ petition for the reliefs claimed is not maintainable. The proper remedy of the petitioner is to approach the civil court to challenge the alleged illegal action of the respondent-company and claim damages, if it is so advised. ( 17 ) IN the conspectus of the above facts, the writ petition turns out to be devoid of any merits and substance and is accordingly dismissed.