Kala Agencies,Rep. by its ProprietrixMrs.R.Kalavalli v. The Deputy General Manager (LPG), Indian Oil Corporation Ltd. & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 30.04.2008CORAM:THE HONOURABLE MR.JUSTICE S.J.MUKHOPADHAYAANDTHE HONOURABLE MR.JUSTICE R.SUBBIAHW.A.No.344 of 2008& M.P.No.1 of 2008Kala Agencies,Rep. by its ProprietrixMrs.R.Kalavalli,No.2, Maran Nagar Extension,Poonamallee,Chennai-600 056. .. Appellantvs.1. The Deputy General Manager (LPG), Indian Oil Corporation Ltd., Indian Oil Bhavan, 139, Nungambakkam High Road, Chennai-600 034.2. The Chief Area Manager, Indian Oil Corporation Ltd., Indian Oil Bhavan, 139, Nungambakkam High Road, Chennai-600 034... RespondentsWrit Appeal against the order of this Court dated 21.2.2008in Writ Petition No.35677 of 2007. Presented under ArticlePresented under Article 226 of the constitution of India to issuea writ of certiorari calling for the records of the constitutionof India to issue a writ of certiorari calling for the recordsrelating to the letter dated 20.11.2007 of the 1st respondent andquash the same.For appellant : Mr.P.S.Raman, Senior Counsel for Mr.P.R.RamanFor respondents : Mr.T.R.Rajagopalan, Senior Counsel for M/s.Anand, Abdul and Vinodh Associates https://hcservices.ecourts.gov.in/hcservices/ JUDGMENTS.J.MUKHOPADHAYA,JThe appellant-writ petitioner (Kala Agencies) is a LPGdistributor of Indane Gas. By order dated 20.11.2007, itsdistributorship was suspended by the Deputy General Manager(LPG), Indian Oil Corporation Limited (hereinafter referred to as'the IOC'), Chennai. Against the said order dated 20.11.2007, itpreferred Writ Petition in W.P.No.35677 of 2007 before thisCourt. In view of the submission made on behalf of the IOC thatthere is a clause in the agreement between the parties to referany dispute to arbitration, the learned single Judge dismissedthe Writ Petition on 21.2.2008, giving liberty to the appellant-writ petitioner to avail such remedy of arbitration, giving riseto the present Writ Appeal. 2. The only question to be determined in the present caseis, in the facts and circumstances, while distributorship of aGas Agency, if suspended, arbitration can be said to be analternative remedy to refuse the relief under Article 226 of theConstitution of India.3. The petitioner was granted distributorship of Indane Gasby the IOC, pursuant to the agreement dated 30.3.1996. As perClause 37 of the agreement, right is conferred on the parties torefer any dispute for arbitration. 4. It appears that since November 1997, for one or otherground, such as shortage of some domestic cylinders, delay inweekly remittances, discrepancies in the operation of thedistributorship, etc., the IOC imposed penalty on the petitioner.In the year 2007, during random customer contact, as certaincustomers could not be located in the address as mentioned in thehistory card and some of the customers have informed that theyhad not received refills as per the number of refills recordedas delivered in the history card, an explanation was called forfrom the petitioner by the IOC, vide letter No.CHAO:525, dated18.10.2007 and having received reply on 29.10.2007, being notsatisfied, the Deputy General Manager (LPG) suspended thepetitioner's distributorship, vide impugned letter No.TNL/S/332,dated 20.11.2007. In the impugned order of suspension, pasthistories were shown and the petitioner was informed that thesuspension of its distributorship is without prejudice to therights of the IOC for taking further action as it deemed fitagainst the petitioner. https://hcservices.ecourts.gov.in/hcservices/

5. The petitioner, while denying the allegations, hasalleged that the impugned order of suspension of thedistributorship was issued without conducting any enquiry andwithout seeking specific explanation from it. According to thepetitioner, the gas connection is issued on the strength ofration card or letter of no ration card, issued by the CivilSupplies Department of the State. The random customer contact asstated to have been made by the respondents-IOC, if so made, wasbehind the back of the petitioner and therefore, such reportcannot be used against it. Further case of the petitioner isthat there are no irregularities committed within the span oftwo years from the first deficiency and therefore, the impugnedaction is contrary to Marketing Discipline Guidelines for LPG,2001. So far as the action alleged to have been taken by therespondents-IOC, according to the petitioner, except pointing outone penalty in the year 2007, there is no other penalty imposedwithin the span of two years and thus, as per the Guidelines, noaction can be taken on the basis of the previous conduct.6. The learned Senior Counsel appearing for the petitioner,while submitting that arbitration is not the remedy against theimpugned order of suspension of distributorship, there being nodispute between the parties, relied on the decisions of theSupreme Court and this Court in support of his contention thatWrit Petition under Article 226 of the Constitution of India, ismaintainable against such order of suspension.7. On the other hand, according to the learned SeniorCounsel appearing for the respondents-IOC, the contract betweenthe parties being not a statutory contract, the present WritPetition is not maintainable and in view of Clause 37 of theagreement, remedy in regard to the dispute can be resolved by anarbitrator. 8. The respondents, in their affidavit filed before thelearned single Judge, while highlighting certain irregularitiesas were committed by the petitioner since November 1997 andpenalty imposed thereon, it is alleged that there are complaintsreceived from the customers regarding improper and delay inrefill delivery; non-receipt of refills; forcing the customers totake a refill from the go-down and collection of excess chargesfor supply of refills without bills. 9. We have heard the learned counsel appearing for theparties and noticed the rival contentions. The judgments referredto by the parties have also been noticed, apart from theGuidelines issued by the IOC for suspension and termination ofdistributorship of its LPG distributors. https://hcservices.ecourts.gov.in/hcservices/

10. The latest Guidelines as supplied by the learned SeniorCounsel appearing for the respondents-IOC, were issued, vide—Circular No.SL/TD/1601, dated 3.6.2003, which reads as follows: "SL/TD/1601 03.06.2003State HeadsSub: GUIDELINES RELATED TO SUSPENSION &TERMINATION OF DISTRIBUTORSHIPSThe following policy guidelines have been approved byManagement on Comprehensive this is in order to bringin more clarity on the extant policy on Authorities,Situation, Modalities, Time Schedule of Suspension,Extension of Suspension, Revival from Suspension,Issuance of Show Cause Notice and Termination of alltypes of distributorships including SC/STdistributorships, in line with the MDG 2001. Theserecommendations supercede all provisions on the aboveactions available hitherto.Kindly take necessary action to implement theguidelines with immediate effect.A.AuthoritiesThe different level of approving authorities arefollows:ActionAuthority (SC/STcases)Authority(Others)Suspension upto 3months initiallyLPG SalesHead, HOLPG I/G,SOExtension of Suspensionupto 6 monthsED (LPG),HOLPG I/C,SOExtension of Suspensionbeyond 6 monthsED(LPG),HOState HeadRevival From SuspensionED(LPG),HOState HeadIssuance of Show Causenotice for TerminationED(LPG),HOLPG I/C,SOTerminationDir (M)State HeadUpon approval, all the letters addressed to thedistributor on Suspension, its Revival and Show Causefor Termination shall be signed by the LPG/IC of the https://hcservices.ecourts.gov.in/hcservices/ State Officer. However, Termination letter shouldonly be signed by State Head. While issuingTermination letter to an old distributorship,clarification in the matter of signatory/appointingauthority as discussed in earlier HO communicationSL/KKH/1407 dtd.05.11.1999 must be adhered to.B.SituationsA distributorship should be suspended only in casewhere continuation of operation of thedistributorship could be detrimental to the interestof IOC. The following can be considered as theguidelines for taking a decision for Suspension:-a. Cancellation/Suspension of statutory licenseof a distributorship viz. Trade/Retail SellingLicense, Explosive Storage License, Sales TaxRegistration etc. approval byLocal/District/State/Central Government.b. Specific written order to IOC fromLocal/District/State Central Government toSuspend/Terminate a distributorship.c. Repeated equipment shortage of more than 10cylinders in two consecutive surprise inventories.d. Repeated operational deficiency of samenature found during 4 consecutive inspections.e. Delay of more than one month in remittingWeekly Remittance payment amounting more thanRs.50,000.00 paying to IOC, to preempt thepossibility of further accumulation of outstanding.This would be in addition to the existing provisionsin MDG 2001.f. Any other act of the distributor which may bedetrimental to the interest of IOC.2. Suspension of a distributorship should primarilybe in order to arrest the further deterioration ofsituation or to prevent possible loss to IOC andshould not be used as a form of punishment to thedistributor as MDG-2001 contains adequate provisionsto deal with malpractice and irregularities. https://hcservices.ecourts.gov.in/hcservices/

3. As proposed in the Authority above, normally theperiod of Suspension shall not exceed 3 months andfurther action for Revival from/Extension ofSuspension, issuance of Show Cause Notice andTermination as the case may be, should also beobtained from/decided by the competent authoritywithin this period. Extension of the Suspensionbeyond 3 months and upto 6 months is to be concurredonly when there are compelling circumstancesrestricting Revival from Suspension or further actiontowards Termination is necessitated and the sameshould be recorded in writing.C. Modalities/Time Schedule1. Area Office is to initiate the note for Suspensiongiving their details of the deficiencies/malpracticebased on which it can be inferred that furthercontinuation of the distributorship would bedetrimental to the interest of IOC or theinstructions from Government Authorities as listedabove. The note should be signed by at least twoofficers from the Area Office including the AreaManager and put up to State Office.2. Decision on the note by State office is to begiven within 7 working days of receipt of the note.In case the proposal is turned down or furtherinformation/clarification is required. State Officeis to communicate the same in writing to Area Officeand Area Office in turn would respond to such querieswithin 3 working days of receipt of the advice. Incase it is not possible to respond within 3 workingdays, then an interim reply should be sent by Areaoffice to State Office stating by which time theresponse shall be sent. If suchclarification/information is obtained by phone, thesame should also be confirmed by State Office inwriting to the Area Office.3. In case of Suspension of SC/ST distributorships,State Office shall send the note to Head Office afterconcurrence of the State Head. Head Office wouldconvey the decision on writing to the State Officewithin 7 working days of receipt of the note forcompliance. In case the proposal is turned down orfurther information/clarification is required, HeadOffice is to communicate the same in writing to StateOffice and State Office in turn would respond to such https://hcservices.ecourts.gov.in/hcservices/ queries within 3 working days of receipt of theadvice. In case it is not possible to respond within3 working days, then an interim reply should be sentby State Office to Head Office stating by which timethe response shall be sent. If suchclarification/information is obtained by phone, thesame should also be confirmed by Head Office inwriting to the State Office.4. However, in case of urgency e.g. order fromGovernment Authorities directing immediate suspensionwhen even a few days leverage is not available forprocessing the note and to obtain approval,telephonic approval may be taken and then the noteshould be put up mentioning details for suchcompelling circumstances leading to not factoregularization of the Suspension approval.5. The above modalities are to be followed in case offurther course of actions like Extension of/Revivalfrom Suspension, Issuance of Show Cause Notice andTermination also, as the case may be. However, withrespect to time schedule, timely action should betaken so as to obtain approval on the proposedfurther course of action within the period ofSuspension already approved and a clear time periodof 15 working days must be made available to theapproving authority. Such a note should clearlyjustify the proposed further course of action withsupporting documents/relevant details. If for somespecific/compelling reason (to be recorded inwriting) the approving/recommending authority failsto decide further course of action within the 15working days period, the onus of initiating andobtaining approval for Extension of Suspension shallbe with such approving or recommending authorityonly. However, such incidents should be bare minimumif not zero and concerned Office should take adequateeffort to avoid such a situation.6. On need base, draft letter on Suspension, Revivalfrom Suspension, Show Cause Notice and Terminationshould be approved from the State law Departmentwithin 15 working days from the date of approval sothat the letter is issued to the addressee withinnext 2 working days.D. General Points https://hcservices.ecourts.gov.in/hcservices/

1. Once a distributorship is suspended, dependingupon circumstances, Area Office is to take necessaryaction to arrange safe custody of all the IOCequipment and stationery lying at the distributorshipand also arrange for alternate refill supply andallied services to the customers of thedistributorship in consultation with local/districtGovernment as per extant guidelines.2. State Head shall review all cases pertaining toSuspension once in every quarter for speedy disposalof the same.(S.K.Kohli) GM (LPG-Sales) Cc.GM I/C (LPG)Cc.LPG In charges of State OfficesCc.All Area Managers." 11. In the present case, the impugned order of suspensionhas been issued by the first respondent-IOC on 20.11.2007 and theOfficer being in-charge of LPG, as per the Guidelines, thesuspension order could remain in force for a period of threemonths initially, with further extension for a period up to sixmonths. However, for the extension of the period of suspensionbeyond six months, the State Head can issue the order ofsuspension, but in the present case, there is nothing on therecord to show that any order of extension has been issued by anyauthority. The order of suspension having been issued on20.11.2007, by the time the learned single Judge passed the order(21.2.2008), more than three months having been passed, thelearned single Judge ought to have decided whether the order ofsuspension ceased its effect in the absence of an order ofextension issued by the competent authority. The matter shouldnot have been left open for determination by an arbitrator in thelight of guidelines aforesaid. 12. Admittedly, except that the petitioner had challengedthe order of suspension of distributorship, dated 20.11.2007, ithad not claimed any compensation from the respondents. Therebeing no dispute in regard to the authority who issued the orderof suspension, in the absence of any other dispute, there was nooccasion for the learned single Judge to ask the parties to movebefore an arbitrator.13. We have noticed the submission as made by the learnedSenior Counsel appearing for the respondents-IOC that the https://hcservices.ecourts.gov.in/hcservices/ petitioner has disputed certain facts based on which the order ofsuspension has been issued. But that cannot be stated to be adispute between the parties for determination by an arbitrator. 14. As per the Guidelines of IOC, the suspension ofdistributorship is a temporary measure as may be taken, if thereare certain allegations pending enquiry and if it is found thatthe continuation of the distributorship in the meantime, couldbe detrimental to the interest of the IOC. On such suspension,the relationship between the IOC and the distributor, does notterminate till an order of termination of distributorship isissued by the competent authority. Such temporary measure (ofsuspension) can be taken initially for about three months, whichcan be extended in appropriate case for further period of sixmonths or till the competent authority takes a final decision. Asin an appropriate case, the authority may exonerate the dealer,there is no occasion for any of the parties to move before anarbitrator till any final order is passed against thedistributor.15. We, accordingly, hold that the recourse to Clause 37 ofthe agreement for appointment of an arbitrator cannot be taken byany party against an interim order of suspension. 16. So far as the question of maintainability of the WritPetition is concerned, similar matter fell for considerationbefore the Supreme Court in the decision reported in 2003 (2) SCC107 (Harbanslal Sahina vs. Indian Oil Corpn. Ltd). That was acase where the dealership of the appellant therein was terminatedby the IOC for an irrelevant and non-existing cause. Having notgranted the relief by the High Court under Article 226 of theConstitution of India on the ground that there is a remedy byway of recourse to arbitration, when the matter was moved beforethe Supreme Court, the Apex Court held as follows:"7. So far as the view taken by the HighCourt that the remedy by way of recourse toarbitration clause was available to theappellants and therefore the writ petitionfiled by the appellants was liable to bedismissed is concerned, suffice it to observethat the rule of exclusion of writjurisdiction by availability of an alternativeremedy is a rule of discretion and not one ofcompulsion. In an appropriate case, in spiteof availability of the alternative remedy, theHigh Court may still exercise its writjurisdiction in at least three contingencies:(i) where the writ petition seeks enforcementof any of the fundamental rights; (ii) where https://hcservices.ecourts.gov.in/hcservices/ there is failure of principles of naturaljustice; or (iii) where the orders orproceedings are wholly without jurisdiction orthe vires of an Act is challenged. (SeeWhirlpool Corpn. v. Registrar of Trade Marks(1998(8)SCC 1). The present case attractsapplicability of the first two contingencies.Moreover, as noted, the petitioners'dealership, which is their bread and butter,came to be terminated for an irrelevant andnon-existent cause. In such circumstances, wefeel that the appellants should have beenallowed relief by the High Court itselfinstead of driving them to the need ofinitiating arbitration proceedings." 17. In the case of "The Indian Oil Corporation Ltd.(Marketing Division), Tamil Nadu State Office vs. BommaiKadhirvelu, Proprietor, JBR Indane Gas Service and 3 others"(unreported decision) in Writ Appeal No.371 of 2006, disposed ofon 20.6.2006, a Division Bench of this Court noticed the similarsubmissions as made by the IOC in the present case. That was acase in which agreement was reached between the IOC and the firstrespondent therein and the first respondent therein was a dealerin petroleum products. For certain grounds, the distributorshipof the first respondent in that case, was terminated, which waschallenged before this Court in a Writ Petition and the learnedsingle Judge set aside the order of termination on merits. Inthat case, in the appeal, the IOC took a similar plea that therewas an alternative remedy before an arbitrator under the relevantclause of the agreement and the Writ Petition was notmaintainable. A Division Bench of this Court, by the aforesaidjudgment, dated 20.6.2006, while framing the following questionin paragraph 5 of the judgment, refused to grant the relief andmade the following observations: "5. The only question which arises ourconsideration is whether the discretionaryjurisdiction under Article 226 of theConstitution of India could be refused to beexercised only on the ground of existence ofan alternative remedy, which is notefficacious. It is well settled that accessto justice by way of public law remedy wouldnot be denied when a lis involves public lawcharacter and when the forum chosen by theparties would not be in a position to grantappropriate relief." https://hcservices.ecourts.gov.in/hcservices/ "7. In Harbanslal Sahnia and Another Vs.Indian Oil Corporation Limited and others(2003) 2 SCC 107, Lahoti,J. (as His Lordshipthen was), relied upon Whirlpool CorporationVs. Registrar of Trade Marks, (1998) 8 SCC 1observing that in an appropriate case, inspite of availability of the alternativeremedy, the High Court may still exercise itswrit jurisdiction in at least threecontingencies: (i)where the writ petitionseeks enforcement of any of the fundamentalrights; (ii)where there is failure ofprinciples of natural justice; or (iii)wherethe orders or proceedings are wholly withoutjurisdiction or the vires of an Act ischallenged."18. In view of the judgment of the Supreme Court, thejudgment of this Court as referred to above and observations aswe have made in the preceding paragraphs, we are of the view thatthe learned single Judge, instead of dismissing the case formoving before arbitrator, should have entertained the WritPetition for its determination on merit.19. Further, as it is not in dispute that the petitionerwas not communicated with any specific instance relating to oneor other incident or any customer, relating to which, vaguereference has been made in the impugned order of suspension andno specific instance having been shown by the respondents and asthe allegation that the random customer contact was made by theField Officer behind the back of the petitioner, has not beendenied and now more than five months have passed after the orderof suspension, we are of the view that the order of suspensionshould not continue any further, in the absence of any order ofextension issued by the competent authority.20. We accordingly set aside the impugned order passed bythe learned single Judge dated 21.2.2008 in W.P.No.35677 of 2007and the order of suspension of distributorship, dated 20.11.2007,but give liberty to the respondents, if they so choose, to makeproper enquiry and to pass appropriate orders in accordance withlaw, after notice and hearing the petitioner. https://hcservices.ecourts.gov.in/hcservices/

21. The Writ Appeal is allowed with the aforesaidobservations, but there shall be no order as to costs. TheMiscellaneous Petition is closed.CsSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Deputy General Manager (LPG), Indian Oil Corporation Ltd., Indian Oil Bhavan, 139, Nungambakkam High Road, Chennai-600 034.2. The Chief Area Manager, Indian Oil Corporation Ltd., Indian Oil Bhavan, 139, Nungambakkam High Road, Chennai-600 034.+ 1 cc to Mr. P. R. Raman, Advocate SR No.25742+ 1 cc to M/s. Anand, Advocate SR No. 25996 Judgment in W.A.No.344 of 2008MRD(CO)SR/7.5.2008