REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO.104 OF 2009

M/s Hindustan Petroleum  Corpn. Ltd. & Ors. .. Petitioners

Vs. M/s Super Highway Services & Anr. .. Respondents

J U D G M E N T

ALTAMAS KABIR, J.

1. This  Special  Leave  Petition  involves  the  

question  as  to  whether  the  dealership  of  the  

Respondent  No.1  had  been  validly  terminated  in  

accordance  with  Clause  58  of  the  Dealership  

Agreement  executed  between  the  parties  on  30th  

August, 2003.  In addition, it would also have to  

be considered as to whether the termination of the

Agreement  was  in  keeping  with  the  procedure/  

guidelines  in  conducting  Marker  Test  in  retail  

outlets.    

2. By  virtue  of  the  aforesaid  Agreement,  the  

petitioner  Corporation  entered  into  an  Agreement  

with the Respondent No.1 for the retail sale or  

supply of petrol, diesel, motor oils, grease and  

such other products as might be specified by the  

Corporation from time to time, at the premises in  

question. The Agreement was to remain in force for  

15  years  with  effect  from  30th August,  2003.  

However, both the parties would be at liberty to  

determine  the  Agreement  without  assigning  any  

reason by giving three months’ notice in writing to  

the  other  of  its  intention  to  terminate  the  

Agreement and upon expiration of such notice, the  

Agreement  would  stand  cancelled  and  revoked,  

without  prejudice  to  the  rights  of  either  party  

against the other in respect of any matter or thing  

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antecedent  to  such  termination.  It  was  also  

indicated that such liberty would not prejudice the  

rights  of  the  Corporation  to  terminate  the  

Agreement earlier on the happening of any of the  

events  mentioned  in  Clause  58  of  the  Agreement.  

Clause 4 of the Agreement provided that the licence  

and permission granted for the use of the outfit  

would terminate immediately on the termination of  

the Agreement or on any breach of any of the terms  

thereof. The relevant portion of Clause 58 of the  

Agreement is reproduced hereinbelow :-

“58.Notwithstanding  anything  to  the  contrary  herein contained, the Corporation shall also be  at  liberty  to  terminate  this  agreement  forthwith  upon  or  at  any  time  after  the  happening  of  any  of  the  following  events,  namely:- (a) If the dealer shall commit a breach of any  

of the covenants and stipulation contained  in the agreement, and fail to remedy such  breach within four days of the receipt of  

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a written notice from the corporation in  that regard.

(b) …………………………………………………………………………………………… (c) …………………………………………………………………………………………… (d) …………………………………………………………………………………………… (e) …………………………………………………………………………………………… (f) …………………………………………………………………………………………… (g) …………………………………………………………………………………………… (h) …………………………………………………………………………………………… (i) If the dealer shall contaminate or tamper  

with the quality of any of the products  supplied by the Corporation.

(j) …………………………………………………………………………………………… (k) …………………………………………………………………………………………… (l) …………………………………………………………………………………………… (m) If the dealer shall either himself or by  

his servants or agents commit or suffer to  be  committed  by  any  act  which  in  the  opinion  of  the  Chief  Senior  Regional  Manager  of  the  Corporation  of  the  time  being  at  Patna  whose  decision  shall  be  final, is prejudicial to the interest or  good  name  of  the  Corporation  or  its  products the Chief Senior Regional Manager  shall not be bound to give reason for such  decision.”

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3. On 26th May, 2008, a check was conducted at the  

outlet  of  the  Respondent  No.1  Company,  where  a  

sample of High Speed Diesel (HSD) failed the Marker  

Test,  which  indicated  that  the  same  had  been  

contaminated.  On  the  same  day,  the  petitioner  

Corporation’s authorized representative, SGS India  

Pvt. Ltd. submitted its report on the Marker Test  

indicating  such  contamination.  Accordingly,  in  

terms  of  the  Marketing  Disciplinary  Guidelines,  

referred to hereinabove, on 27th May, 2008, sales  

and supplies of all the products from its outlet  

were suspended by the petitioner Corporation to the  

Respondent  No.1  because  of  the  sample  failure.  

According  to  the  petitioner  Corporation,  on  the  

very next day on 28th May, 2008, the Respondent No.1  

was given notice that a Nozzle Test of HSD was to  

be conducted at the Barauni Terminal on 29th May,  

2008.  According to the petitioner Corporation, the  

Respondent  No.1’s  representative  refused  to  

acknowledge  the  notice.  However,  the  Area  Sales  

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Manager of the petitioner Corporation is alleged to  

have informed the Respondent No.1 telephonically of  

the Nozzle Test to be conducted on 29th May, 2008,  

at its Barauni Terminal.  Despite having been given  

notice,  no  one  appeared  on  behalf  of  the  said  

respondent when the comparison test was conducted  

in Barauni and the same was held at the Barauni  

Terminal on 29th May, 2008, in the presence of the  

representative of SGS India Pvt. Ltd. (the agent of  

the  petitioner),  the  Manager,  Barauni  Terminal,  

Transporter’s  representative  and  the  petitioner’s  

Area Sales Manager.   Further to the result of the  

test, the Respondent No.1 was served with a notice  

dated 14th July, 2008, asking it to show cause as to  

why  its  dealership  should  not  be  cancelled  on  

account of the failed Marker Test.  According to  

the petitioner Corporation, the reply sent by the  

Respondent  No.1  on  21st July,  2008,  was  entirely  

vague.  Immediately thereafter, the respondent No.1  

filed a Writ Petition, being CWJC No.11172 of 2008,  

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in the Patna High Court praying for issuance of  

appropriate writs to quash the entire proceedings  

arising out of the Marker Test.  On 9th September,  

2008,  the  petitioner  Corporation,  upon  

consideration of the reply sent by the Respondent  

No.1  to  the  Show  Cause  Notice,  terminated  the  

Dealership Agreement of the Respondent No.1 under  

Clause 58(1) thereof.   

4. On  25th September,  2008,  a  counter  affidavit  

was filed on behalf of the petitioner Corporation  

in the Writ Petition mentioning the refusal on the  

part  of  the  Respondent  No.1  to  acknowledge  the  

notice dated 28th May, 2008, informing it of the  

Nozzle Sample and T/T Retention Sample Test which  

was to be conducted at the Barauni Terminal on 29th  

May, 2008.   

5. On 15th October, 2008, the learned Single Judge  

allowed the Respondent No.1’s writ petition, upon  

holding,  inter  alia,  that  mere  statement  on  

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affidavit  that  an  unsuccessful  attempt  had  been  

made to serve the Respondent No.1, was insufficient  

for taking such a drastic step such as termination  

of  the  Dealership  Agreement.  The  learned  Single  

Judge held that even if the Respondent No.1 had  

refused to acknowledge the letter, the same could  

have been sent to it by registered post and the  

testing could have been delayed, as there was no  

urgency involved, as, in any event, the pump of the  

Respondent No.1 had been sealed.  Apart from the  

above, the learned Single Judge took note of the  

fact  that  as  per  the  version  of  the  Respondent  

No.1, no information had been given to it about the  

testing to be conducted at the Barauni Terminal on  

29th May, 2008.  What also weighed with the learned  

Single Judge was that on behalf of the Respondent  

No.1  it  was  asserted  that  the  person  who  is  

supposed  to  have  served  the  letter  on  the  

Respondent No.1, was not in Barauni on 29th May,  

2008,  when  the  same  is  supposed  to  have  been  

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refused  by  the  representative  of  the  Respondent  

No.1.  The learned Single Judge was of the view  

that  since  the  retesting  had  been  done  without  

proper notice to the Respondent No.1, as per the  

Marketing  Discipline  Guidelines,  the  same  had  

caused severe prejudice to the Respondent No.1 and  

the  order  of  termination  of  the  Dealership  

Agreement  dated  9th September,  2008,  could  not,  

therefore, be sustained.

6. Appearing for the petitioner Corporation, Mr.  

U.U. Lalit, learned Senior Advocate, submitted that  

the Nozzle Test had been conducted at site in the  

presence of the representative of the Respondent  

No.1 and also the transporter and samples had been  

drawn  for  testing  at  site  and  also  for  future  

testing, in the presence of the parties.  Since the  

Respondent No.1 failed the Marker Test during the  

Nozzle Test, the samples taken earlier were sent to  

the  Forensic  Laboratory  at  Barauni  for  cross-

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checking.  Mr. Lalit submitted that notice had been  

duly  given  to  both  the  Respondent  No.1  and  the  

transporter, but that while the representative of  

the transporter was present, the Respondent No.1  

chose to be absent during the Marker Test in the  

laboratory.   Mr.  Lalit  submitted  that  the  Show  

Cause Notice issued to the Respondent No.1 on 14th  

July,  2008,  categorically  indicated  that  the  

representative of the Respondent No.1 had refused  

to acknowledge the receipt of the notice dated 28th  

May, 2008, and that the petitioner Corporation had  

no alternative but to proceed with the Marker Test  

at Barauni in the presence of the representative of  

the transporter.  Mr. Lalit submitted that when the  

Respondent No.1 failed the Marker Test even in the  

laboratory,  the  petitioner  Corporation  had  no  

option  but  to  terminate  the  agreement  with  the  

Respondent  No.1.   Mr.  Lalit  also  emphasized  the  

fact that all the samples had been drawn/collected  

not by the employees of the petitioner Corporation  

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themselves, but by its authorized agent, M/s SGS  

India Pvt. Ltd.

7. Mr. Lalit then contended that the proceedings  

before  the  High  Court  in  its  writ  jurisdiction  

stood  vitiated  in  view  of  Clause  68  of  the  

Agreement  between  the  petitioner  Corporation  and  

the Respondent No.1 which provided for arbitration  

in respect of disputes or difference of any nature  

whatsoever or relating to any right, liability, act  

or omission between any of the parties arising out  

of or in relation to the agreement and the same  

were to be referred to the sole arbitration of the  

Managing  Director  of  the  Corporation  or  of  some  

officer of the Corporation who might be nominated  

by the Managing Director. Mr. Lalit submitted that  

without taking recourse to the arbitration clause,  

the Respondent No.1 was not entitled in law to move  

the writ Court against the order terminating its  

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agreement with regard to operation of the retail  

outlet.   

8. In  support  of  his  submissions,  Mr.  Lalit  

firstly referred to and relied upon the decision of  

this  Court  in  Indian  Oil  Corporation  Ltd. vs.  

Amritsar Gas Service & Ors. [(1991) 1 SCC 533],  

wherein an Award made under the Arbitration Act,  

1940, was under challenge and it was held that even  

if  the  clause  providing  for  termination  of  the  

agreement for sale of LPG by Indian Oil Corporation  

was not available, the agreement was terminable by  

either party under Clause 8 and hence, the only  

relief  which  could  be  granted  was  award  of  

compensation for loss of earning for the period of  

notice and not restoration of the distributorship.

9. Reference was also made to the decision of this  

Court in  Mrs. Sanjana M. Wig vs.  Hindustan Petro  

Corporation Ltd. [AIR 2005 SC 3454], in which this  

Court was dealing with the termination of a petrol  

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pump dealership.  In the said case, one of the  

objections taken to the writ petition was that the  

said jurisdiction had been wrongly invoked since an  

alternative  remedy  was  available  and  questions  

relating to the termination gave rise to serious  

questions  of  fact  arising  out  of  the  contract  

between  the  parties,  which,  ordinarily  the  writ  

Court  would  not  be  entitled  to  go  into.   The  

Supreme Court went on further to hold that in such  

circumstances the writ petition was not the proper  

remedy  and  the  refusal  of  the  High  Court  to  

entertain  the  writ  petition  on  the  ground  of  

existence of an alternative remedy should not be  

interfered  with.   Several  decisions  on  the  same  

lines,  including  that  of  Amritsar  Gas  Service’s  

case, were taken into consideration while arriving  

at the said decision on being fully conscious of  

the fact that only if a question of public law  

character was involved, could a writ petition be  

entertained in the existing circumstances.

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10. Mr.  Lalit,  however,  pointed  out  that  a  

differing  view  had  been  taken  by  this  Court  in  

State of Himachal Pradesh & Ors. vs. Gujarat Ambuja  

Cement Ltd. & Anr. [(2005) 6 SCC 499] in which the  

question  as  to  whether  the  High  Court  should  

interfere under Article 226 of the Constitution,  

when an alternative remedy was available, fell for  

consideration  and  it  was  held  that  the  power  

relating to alternative remedy is a rule of self-

imposed limitation.  It is essentially a rule of  

policy, convenience and discretion and never a rule  

of law. It was also held that despite the existence  

of  an  alternative  remedy  it  is  within  the  

discretion of the High Court to grant relief under  

Article 226 of the Constitution, though, it should  

not  interfere  if  an  adequate  efficacious  

alternative remedy was available.  Mr. Lalit also  

pointed out that since the Gujarat Ambuja Cement’s  

case was rendered by a three Judge Bench, in the  

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case of  M/s. Ankur Filling Station vs.  Hindustan  

Petroleum  Corp.  Ltd.  &  Anr. being  

SLP(C)No.11193/2009,  a  Bench  consisting  of  two  

Judges of this Court was of the opinion that the  

question  regarding  the  jurisdiction  of  the  High  

Court to entertain a writ petition in a similar  

situation and to direct restoration of supply by  

itself, may not be a ground to entertain a writ  

application, particularly when the remedy of the  

petition in such an event may also lie by filing a  

civil suit.  Accordingly, while issuing notice on  

the basis of the earlier view taken by this Court,  

it was felt that the matter should be considered by  

a larger Bench.  The Special Leave Petition was,  

therefore, directed to be placed before the Hon’ble  

the Chief Justice of India for appropriate orders.  

We are informed by Mr. Lalit that the same is still  

pending.   

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11.   Mr.  Lalit  submitted  that  in  view  of  the  

failure  of  the  Respondent  No.1  to  avail  of  the  

alternative  remedy  available  to  it,  the  writ  

petition should have been dismissed at the initial  

stage.

12. Mr. Lalit’s submissions were vehemently opposed  

by Mr. Ramesh P. Bhatt, learned Senior counsel, who  

pointed out that the entire procedure adopted by  

the petitioner had been vitiated on account of the  

fact  that  the  notice  dated  25th December,  2008,  

which  was  alleged  to  have  been  sent  by  the  

petitioner  to  the  Respondent  No.1  regarding  the  

test conducted at the Barauni Terminal had not been  

served  on  the  Respondent  No.1  and  it  was,  

therefore, completely unaware of the fact that such  

a  test  was  to  be  conducted.   Mr.  Bhatt  also  

submitted that it was the stand of the Respondent  

No.1 that no Marker Test had, in fact, been held on  

26th May, 2008, at the retail outlet itself.  The  

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learned counsel pointed out that by letter dated  

30th May,  2008,  the  Respondent  No.1  informed  the  

Senior  Regional  Manager  of  the  petitioner  that  

although the representative of S.G.S. India Pvt.  

Ltd. had come to the retail outlet on 26th May, 2008  

in order to conduct a marker test of the nozzle  

sample of MS and HSD from the dispensing unit, such  

a  test  could  not  be  conducted  since  the  retail  

outlet was dry in respect of both MS and HSD, which  

made it impossible for samples to be drawn from the  

nozzles  of  the  dispensing  units  of  the  said  

products.  Similarly, the underground tanks were  

also  dry  and  there  was  hardly  any  MS  or  HSD  

available in tank Nos.1 and 2 from which samples  

could be extracted through the nozzle.  Mr. Bhatt  

also pointed out several other letters of protest  

written on behalf of the Respondent No.1 against  

the termination of supply of petroleum products to  

the said Respondent and requesting that the same  

may be restored immediately.   

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13. Mr. Bhatt then referred to the reply given on  

behalf of the Respondent No.1 on 25th June, 2008, to  

the show cause notice wherein again the above facts  

were  reiterated  and  it  was  also  asserted  in  no  

uncertain  terms  that  the  notice  regarding  the  

conducting  of  laboratory  test  at  the  Barauni  

Refinery of the petitioner had not been served upon  

the  respondent.  Referring  in  particular  to  the  

alleged notice dated 28th May, 2008, informing the  

Respondent No.1 that the Marker Test was to be held  

at the Barauni Terminal on 29th May, 2008, Mr. Bhatt  

pointed out that the alleged refusal to acknowledge  

receipt by an employee of the Respondent No.1 was  

dated  29th May,  2008  itself  and  it  was  highly  

doubtful as to whether such notice was at all meant  

to be served on the Respondent No.1 to enable its  

representative to be present at the Marker Test at  

Barauni on the same day.  It was also pointed out  

that upon information which had been taken by the  

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Respondent  No.1,  Mr.  Dilip  Kumar  Dash,  the  Area  

Sales Manager of the petitioner Corporation, who  

was  said  to  have  tendered  notice  to  the  

representative of the Respondent No.1, was not even  

present in Barauni on 29th May, 2008.   

14. Mr. Bhatt submitted that in failing to serve  

notice  on  the  Respondent  No.1  regarding  the  

conducting of the laboratory test at the Barauni  

Terminal,  the  entire  process  of  decision  making  

culminating in the termination of the petitioner’s  

agreement, stood completely vitiated and the said  

decision  had  been  correctly  set  aside  by  the  

learned  Single  Judge  whose  decision  was  not  

interfered with by the Division Bench in appeal.  

15.  Mr.  Bhatt  submitted  that  even  if  the  case  

sought to be made out on behalf of the petitioner  

Corporation  regarding  refusal  of  acceptance  of  

notice by the representative of the Respondent No.1  

is  accepted,  the  same  could  have  been  sent  by  

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registered post with acknowledgement due and the  

Marker Test could have been postponed for some time  

for  the  said  purpose  as  there  was  no  immediate  

threat to the T/T Samples or the samples at site  

becoming contaminated in any way.   It was pointed  

out  that  even  the  ordinary  norms  relating  to  

service of notice were not followed in the instant  

case and in that regard reference was made to a  

similar  notice  issued  to  another  retail  dealer,  

made Annexure A-4 to the additional affidavit on  

behalf of the Respondent No.1. It was pointed out  

that the said letter dated 23rd December, 2008, not  

only had a reference number, but was printed and  

sent  to  the  dealer  concerned,  whereas  in  the  

instant case the notice alleged to have been given  

to the Respondent No.1 by Shri D.K. Dash was in  

hand written script.  In addition, the same did not  

have any reference number and though dated 28th May,  

2008, was alleged to have been tendered on 29th May,  

2008, the very date on which the Marker Test was to  

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be held in the Barauni Terminal at 3.00 p.m.   Mr.  

Bhatt  urged  that  the  said  notice  was  obviously  

manufactured for the purpose of termination of the  

dealership of the Respondent No.1.   

16. Having  carefully  considered  the  submissions  

made on behalf of the respective parties and also  

having considered the various decisions referred to  

by learned counsel, we are of the view that the  

case made out on behalf of the Respondent No.1 is  

more  probable.  Although,  the  transporter’s  

representative was present at the terminal at the  

stipulated time on 29th May, 2008, that by itself  

cannot give rise to a presumption that service had  

been effected also on the Respondent No.1, in the  

absence of any proof in that regard.  Except for  

the endorsement on the hand-written notice said to  

have been given by Mr. Dash, there is nothing else  

on record to even suggest that notice had been sent  

to the Respondent No.1 and that the same had been  

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refused.  It is also rather difficult to accept  

that in respect of a test to be conducted on 29th  

May, 2008, at 3.00 p.m., an attempt was made to  

serve the said notice on the representative of the  

Respondent No.1 on the date of the proposed test  

itself.  Although,  the  notice  is  dated  28th May,  

2008, the endorsement alleged to have been made by  

the representative of the Respondent No.1 is dated  

29th May,  2008,  and  we  would  be  justified  in  

assuming that the Respondent No.1 could not have  

arranged for being represented at the laboratory in  

the Barauni Terminal of the petitioner Corporation  

on such short notice.  Nothing has been shown by  

the petitioner to disprove the allegation made on  

behalf  of  the  Respondent  No.1  that  the  notice  

alleged to have been tendered to the representative  

of the Respondent No.1 was not in the manner and  

the form in which such notice is required to be  

given to a dealer.  It is obvious that the same had  

been made out in haste to indicate that service had  

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been attempted on the Respondent No.1.

17.  The cancellation of dealership agreement of a  

party is a serious business and cannot be taken  

lightly.   In order to justify the action taken to  

terminate  such  an  agreement,  the  concerned  

authority  has  to  act  fairly  and  in  complete  

adherence to the rules/guidelines framed for the  

said purpose.   The non-service of notice to the  

aggrieved  person  before  termination  of  his  

dealership  agreement  also  offends  the  well-

established  principle  that  no  person  should  be  

condemned  unheard.   It  was  the  duty  of  the  

petitioner to ensure that the Respondent No.1 was  

given a hearing or at least serious attempts were  

made to serve him with notice of the proceedings  

before terminating his agreement.    

18. In the instant case, we are inclined to agree  

with Mr. Bhatt’s submissions that the High Court  

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did  not  commit  any  error  in  allowing  the  writ  

petition filed by the Respondent No.1 herein, upon  

holding that notice of the Laboratory Test to be  

conducted  at  the  Barauni  Terminal  had  not  been  

served upon the Respondent No.1, which has caused  

severe prejudice to the said respondent since its  

dealership agreement was terminated on the basis of  

the  findings  of  such  Test.   Admittedly  the  

dealership agreement was terminated on the ground  

that  the  product  supplied  by  the  petitioner  

corporation  was  contaminated  by  the  respondent.  

Such  contamination  was  sought  to  be  proved  by  

testing the T.T. retention sample in the laboratory  

at Barauni Terminal.  The Guidelines being followed  

by the Corporation require that the dealer should  

be given prior notice regarding the test so that he  

or his representative also can be present when the  

test  is  conducted.   The  said  requirement  is  in  

accordance with the principles of natural justice  

and  the  need  for  fairness  in  the  matter  of  

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terminating the dealership agreement and it cannot  

be  made  an  empty  formality.   Notice  should  be  

served on the dealer sufficiently early so as to  

give him adequate time and opportunity to arrange  

for his presence during the test and there should  

be admissible evidence for such service of notice  

on  the  dealer.   Strict  adherence  to  the  above  

requirement  is  essential,  in  view  of  the  

possibility of manipulation in the conduct of the  

test, if it is conducted behind the back of the  

dealer.   In  the  present  case,  there  is  no  

admissible evidence to prove service of notice on  

the  respondent  or  refusal  of  notice  by  the  

respondent.  Further, the notice dated 28.05.2008  

which was allegedly refused by respondent, did not  

give him adequate time to arrange for the presence  

of himself or his representative during the test to  

be conducted at 3.00 PM on 29.05.2008.  It is also  

to  be  noted  that  the  endorsement  regarding  the  

alleged refusal is dated 29.05.2008 itself.  Thus,  

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the termination of the dealership agreement of the  

respondent was arbitrary, illegal and in violation  

of the principles of natural justice.

19. Although, Clause 68 of the Dealership Agreement  

refers to arbitration, it is unfortunate that the  

said question was not raised before the High Court.  

It is now too late in the day for the petitioner  

Corporation to contend that in view of Clause 68 of  

the Dealership Agreement, the Respondent No.1 was  

not entitled to seek its remedy before the writ  

Court.   In any event, by filing appeal against the  

order of the learned Single Judge, the Petitioner  

herein also submitted to the jurisdiction of the  

writ Court, without objecting to the same.   

20. In  the  aforesaid  circumstances,  we  are  not  

inclined to admit the Special Leave Petition, which  

is, accordingly, dismissed, without, however, any  

order as to costs.        

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________________J. (ALTAMAS KABIR)

________________J. (CYRIAC JOSEPH)

New Delhi Dated: 19.02.2010.

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