BHARAT PETROLEUM CORPORATION LTD.versusM/S JAGANNATH & CO. & ORS.

                        [2013) 2 S.C.R. 828


A          BHARAT PETROLEUM CORPORATION LTD.
                                  v.
                  M/S JAGANNATH & CO. & ORS.
               (Civil Appeal Nos. 3838-3839 of 2013)
                           APRIL 12, 2013
B
             [P. SATHASIVAM AND M.Y. EQBAL, JJ.]

        PETROLEUM ACT, 1934:

c        s.20 read with Marketing Discipline Guidelines, 2005 -
    Dealership licence - Cancellation of - Held: Cancellation of
    dealership agreement is a serious matter and cannot be taken
    lightly - In the instant case, the Guidelines with regard to
    taking of samples, numbering them, and sending the same
0 to Laboratory in the manner prescribed have not been
    followed by Inspecting Officer - Further, provision of s. 20 was
    also not complied with - High Court, after considering all the
    specific claims of contesting respondents, rightly interfered
    with the order of termination of dealership agreement/licence.
E and quashed the same - . Appellants are directed to
  ·implement the directions given by High Court in impugned
   judgment - Marketing Discipline Guidelines, 2005 - Para 2.4. 5.

       Respondent no. 1-firm, a licensed dealer of the
  appellant-BPCL, was engaged in selling petroleum
F products from its retail outlet. Duri~g an inspection
  conducted on 22.8.2005, samples of MSIULPISPEED and
  HSD were taken, sale of all the products was suspended
  and dispensing units and tanks were sealed. By order
  dated 18.1.2006, the TerritoriaLManager of the appellant
G terminated the dealership agreement/licence of the
  respondents with immediate effect The respondent-firm
  filed a writ petition before the High Court, which allowed
  the same, quashed the order dated 18.1.2006 and directed
  the appellant BPCL to restore the dealership.
H                                828
   BHARAT PETROLEUM CORPORATION LTD. v.              829
          JAGANNATH & CO. & ORS.
    Dismissing the appeal, the Court                       A

      HELD: 1.1 As per clause (c) of para 2.4.5 of the
Marketing Discipline Guidelines, 2005, the samples so
collected would be sealed and labeled and the labels so ..
pasted over the containers must have batch number and 8
other details enumerated therein. As per clause (a) of
para 2.4.5, the Inspecting Officer has to draw three
samples from one tank and all the three containers must
have the same batch numbers. It is the complaint of the
contesting respondents that the Inspecting Officer C
allotted three different numbers to the containers
containing samples from the same tank. It is further
pointed out that the numbers shown in the photocopies
of the labels pasted over 7 sealed containers do not co-
relate with the container numbers purported to have been
sent by the Inspecting Officer to the Laboratory because D
all the three containers containing samples from the same
tank had been differently numbered. It is also
demonstrated by the contesting respondents that out of
8 samples so collected, only 5 samples were tested by
the Company Laboratory. Also, no explanation was given E
about the other three samples. It is also hignlighted that
the Laboratory in its report has also not indicated the
numbers of the containers so tested. In such
circumstances, it is impossible to know which sample
has been tested by the Laboratory. [para 7-8] [835-C-H; F
836-A-D]
     1.2 In order to ensure fairness in testing the s.amples,
it has been provided in clause (D) of para 2.5 of the
Guidelines that in case of sample failure, in the event of G
request for testing by the dealer, the same shall be tested
at Company's Laboratory in the presence of
representative(s) of the dealer. In the instant case, the
tests were conducted in the company's laboratory itself.
Therefore, in order to satisfy the conscience of the dealer
about the authenticity of the tests so conducted, it has H
   830     SUPREME COURT REPORTS              [2013] 2 S.C.R.


A been contemplated in the Guidelines that on the request
  of the dealer, the test(s) could be conducted in his
  presence. This Court has held in Super Highway
  Services* that the dealer should be given prior notice
  regarding the test. Strict adherence to the said
B requirement is essential. It was further held that the
  cancellation of dealership agreement of a party is a
  serious business and cannot be taken lightly. [para 10)
  [836-G; 837-C-D, F-G]

      *Hindustan Petroleum Corporation Ltd. & Ors. vs. Mis
                                                     =
C Super Highway Services & Anr., 2010 (2) SCR 1053 (2010)
  3 sec 321 - relied on.
       1.3 In view of the Dealership Agreement, particularly, ·
  clause 10(k), the Petroleum Act, 1934 is applicable in the
D instant case. In terms of s. 20 of the Act, the contesting
  respondents had a right to have fresh samples drawn
  and get the same re-tested within ·seven days of
  intimation of the test results. It is the assertion of the
  contesting respondents that they moved an application
E before the trial court for fresh sampling/retest of the
  products. [para 13) [839-C-E)

       1.4 It is also pointed out that it was respondent No.6
  who made the inspection, collected the samples, issued
  show cause notice and passed an order of cancellation
F of the Dealership Agreement/Licence. By impleading him
  as one of the respondents - respondent No.4 in the High
  Court - specific allegations were made against him· that
  he acted mala fidely in cancelling the same and those
  assertions cannot be lightly ignored. [para 14) [839-H;
G 840-A-B]
       1.5 The High Court, after considering all the specific
  claims of the contesting respondents, rightly interfered
  with the order of termination of the dealership agreement/
H licence dated 18.01.2006 and quashed the same. In view
   BHARAT PETROLEUM CORPORATION LTD. v.                      831
          JAGANNATH & CO. & ORS.
of the same, the appellants are directed to implement the           A
directions given by the High Court in the impugned
judgment. [para 15] [840-8-C]
                      Case Law Reference:
     2010 (2) SCR 1053         relied on              para 10       B

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3838-3839 of 2013.

    From the Judgment and Order dated 09.10.2009 of the
High Court at Allahabad in Civil Misc. Writ Petition No. 26181      C
of 2006 and order dated 06.11.2009 in Review Petition No.
286203 of 2009.

    Sudhir Chandra, Parijat Sinha, Sunil Murarka, Reshmi Rea
Sinha, S.C. Ghosh for the Appellant.                                D
    Shanti Bhushan, Harish Chandra, Mehul Milind Gupta,
Sushendra K. Chauhan, Abha Jain, R.P. Gupta, Sunita Rani
Singh, B.K. Prasad, Arvind Kumar Sharma, Gopal Balwant
Sethe for the Respondents.
                                                                    E
     The Judgment of the Court was delivered by

     P. SATHASIVAM, J. 1. Leave granted.

      2. These appeals have been filed against the final
judgment and order dated 09.10.2009 passed by the High              F
Court of Judicature at Allahabad in C.M.W.P. No. 26181 of
2006 and order dated 06.11.2009 in Civil Misc. Review Petition
No. 286203 of 2009. By judgment dated 09.10.2009, the High
Court allowed the writ petition filed by the contesting
respondents herein and quashed the order dated 18.01.2006           G
passed by the Territory Manager (Retail), Meerut, BPCL
terminating the dealership licence of the outlet of respondent
No.1-Firm and directed restoration of their dealership. Review
petition filed by the appellant herein against the said order was
also dismissed on 06.11.2009 by the High Court.                     H
    832      SUPREME COURT REPORTS                [2013) 2 S.C.R.

A         3. Brief facts:
       a) The appellant - Bharat Petroleum Corporation Ltd. (in
  short "BPCL") is a Government of India Undertaking under the
  administrative control of the Ministry of Petroleum & Natural Gas
B and is engaged in refining, distributing and selling petroleum
  products such as Motor Spirit (MS/Petrol), High Speed Diesel
  (HSD), Kerosene, Liquified Petroleum Gas (LPG) etc., all over
  the country. Respondent No.1-Firm is a licensed dealer of the
  BPCL, selling petroleum products from its Retail Outlet (RO)
C at Court -Road, Saharanpur, U.P. Originally, the Dealership
  Licence was granted, vide agreement dated 24.07.1975.

       b) It is the case of the BPCL that on 22.08.2005, a routine
  inspection of the said RO was conducted by a team consisting
  of Territory Manager, Senior Sales Officer and Senior
D Engineering Officer, Meerut in the presence of one of the
  signatories to the said Dealership Licence viz., Shri Alok Kumar
  Gupta-Respondent No. 3 herein. During the inspection, certain
  irregularities/variations were found for which samples of MS/
  ULP, SPEED and HSD were taken and the sale for all the
E products was suspended and the dispensing units and tanks
  were sealed after taking meter readings. Thereafter, on
  23.08.2005, the seized samples were sent to the Quality
  Control Laboratory at Shakurbasti, Delhi for testing. Vide test
  reports dated 24.08.2005, the Laboratory confirmed that the
F samples failed to meet the required specifications.

       c) Being aggrieved, the respondents instituted a suit being
  O.S. No. 695 of 2005 before the Civil Judge (Sr. Division),
  Saharanpur for resumption of supply of petroleum products and
  for restraining the BPCL from interfering with the sales and
G supplies of petroleum products from their RO along with an
  application for temporary injunction.

      d) On 02.09.2005, BPCL filed a report with regard to the
  samples taken from the outlet. Against the said report, the
H respondent-Firm moved an application raising objection that the
    BHARAT PETROLEUM CORPORATION LTD. v.                        833
   JAGANNATH & CO. & ORS. [P. SATHASIVAM, J.]
 test reports are not based on the samples taken from the outlet        A
 and prayed for redrawal of the samples in the presence of
 independent witnesses.

      e) On 07.09.2005, BPCL issued a show cause notice to
 the respondents as to why action should not be taken against           B
 them including termination of the dealership. The respondents
 put forth their stand by way of a reply dated 21.09.2005. By
 order dated 03.10.2005, learned Civil Judge dismissed the
 application for issuing of temporary injunction. Vide order dated
 18.01.2006, the Territory Manager (Retail), Meerut, terminated         C
 the dealership agreement/licence of the respondents with
 immediate effect. Since the dealership licence of the
 respondents got terminated and the possession of the outlet
 was handed over to Mis Om Filling Station (Respondent No. 8
 herein), they filed an application for withdrawal of the suit and
 by order dated 22.02.2006, the said suit was withdrawn.                D

       f) Thereafter, the respondent-Firm filed a writ petition being
· C.M.W.P. No. 26181 of 2006 before the High Court for
  quashing the termination order dated 18.01.2006. By
  impugned judgment dated 09.10.2009, the High Court allowed            E
  the petition and quashed the termination order and directed the
  BPCL to restore the dealership.

      g) Aggrieved by the said order, the BPCL filed a Review
 Petition being No. 286203 of 2009 before the High Court. The
                                                                        F
 High Court, by order dated 06.11.2009, dismissed the said
 review petition.

     h) Being aggrieved by the judgment dated 09.10.2009 for
 restoring the dealership and order dated 06.11.2009
 dismissing the review petition, the appellant-BPCL has filed           G
 these appeals by way of special leave.

     4. Heard Mr. Sudhir Chandra, learned senior counsel for
 the BPCL, Mr. Shanti Bhushan, learned senior counsel for
 Respondent No-1, Mr. R.P. Gupta, learned counsel for                   H
    834     SUPREME COURT REPORTS                  [2013) 2 S.C.R.


A   Respondent No. 3 and Mr. Harish Chandra, learned senior
    counsel for the Union of India.

          5. Before going into the contentions, learned counsel for
    the contesting respondents highlighted the background of the
    case as a long and chequered history in order to consider the
8
    stand put forth by them. As per the information furnished, it is
    seen that 37 years back, vide agreement dated 24.07.1975,
    M/s Burmah Shell Oil Storage & Distributing Company (now
    BPCL) has entered into a dealership agreement with the
C respondent-firm. Since its beginning in the year 1975, not even
    a single deficiency has been reported in the matter of
    measurement or purity either by the parent company - M/s
    Burmah Shell or by the BPCL during the course of regular
    inspection carried out every month. It is also pointed out that
    only once a notice was issued on 09.03.1995 for lesser sales.
D , !t is also pointed out that on 22.08.2005, one Amit Garg,
    impleaded as respondent No.4 in the High Court (respondent
    No.6 herein), who was holding the post of Territory Manager
    (Retail), Meerut and against whom allegations of mala fide had .·.
    been made in paragraph Nos. 11 & 12 of the writ petition, has
E conducted regular inspection and found no deficiency in the
    measurement. However, he took into custody Sales and
    Density Registers and collected 8 samples - two samples of
    ULP from ULP 20KL Tank, two samples of ULP fr9m 1OKL
    Tank, two samples of Speed from Speed Tank, one sample of
F HSD from HSD Tank and one sample from barrel. After
    collecting the samples, he sealed all the five pumps, viz., two
    of ULP, two of Speed and one of HSD. It is pointed out that
    although, in total, eight samples were collected but respondent
    No.6 herein has filed photocopies of only seven sealed covers
G of wooden containers duly signed by the dealer but the
    photocopy of one of the two samples of ULP collected from
    10KL Tank has not been filed.

         6. Mr. Sudhir Chandra, learned senior counsel for BPCL,
    after taking us through the impugned order of the High Court,.
H
   BHARAT PETROLEUM CORPORATION LTD. v.                       835
  JAGANNATH & CO. & ORS. [P. SATHASIVAM, J.]
submitted that in view of the perversity in the conclusion, the       A
same has to be interfered with. On the other hand, Mr. Shanti
Bhushan, learned senior counsel for respondent No.1-Firm,
submitted that inasmuch as the BPCL failed to follow the
principles of natural justice contrary to Section 20 of the
Petroleum Act, 1934 and Marketing Discipline Guidelines, 2005         B
(in short, "the Guidelines"), the High Court was fully justified in
setting aside the order of termination and no interference is
warranted exercising jurisdiction under Article 136 of the
Constitution of India.

     7. In view of the above, it is important to consider the         C
relevant provisions of the Guidelines. As per clause (c) of para
2.4.5 of the Guidelines, the samples so collected would be
sealed and labeled and the labels so pasted over the containers
must have the product name, name of the retail outlet, package
type, sample source, quantity of sample, sampling date, batch         D
number etc., and should be jointly si9I1ed by the dealer or his
representative(s) and the Inspecting Officer. As per clause (a)
of para 2.4.5, the Inspecting Officer has to draw three samples
from one tank- one for the dealer, second for the Company and
the third will be sent to the Laboratory for testing. In order to     E
ensure that all the three containers are containing samples from
the same tank, all the three containers must have the same batch
numbers duly signed by the dealer and the Inspecting Officer,
otherwise it would be difficult to know as to whether the
container left with the dealer was containing sample from the         F
same tank as has been sent for testing to the laboratory. It is
the complaint of the contesting respondents that the said officer,
however, allotted three different numbers to the containers
containing samples from the same tank. Moreover, the BPCL
has filed photocopies of the labels pasted over 7 sealed              G
containers duly signed by the dealer, each containing
aluminium container Nos. 008997, 008950, 008923, 008976,
008949, 008916 and 008952 along with wooden container Nos.
008960, 008957, 008923, 008976, 008949, 008916 and
008952 in which aluminium containers have been placed. It is          H
    836       SUPREME COURT REPORTS                    [2013] 2 S.C.R.


A   further pointed out by the contesting respondents that these
    numbers do not co-relate with the container numbers purported
    to have been sent by the Inspecting Officer to the Laboratory
    because all the three containers containing sample from the
    same tanker had been differently numbered.
B
          8. It is also demonstrated by the contesting respondents
    that out of 8 samples so collected, only 5 samples were tested
    by the Company Laboratory. Also, no explanation was given
    about the other three samples. It is the claim of the contesting
C   respondents that the BPCL has filed report in respect of only
    5 samples and report of 3 samples has either been suppressed
    or has not been sent to the Laboratory and only a forwarding
    letter has been filed. It is also highlighted that the Laboratory
    has also not indicated the numbers of the containers so tested,
    in its report. In such circumstances, as rightly pointed out, it is
D   impossible to know which sample has been tested by the
    Laboratory. It has also not been mentioned in the report that
    the Laboratory has received the samples in sealed covers and
    the seals were opened by them as is the practice in every report .
    received from forensic laboratory. It is further highlighted that
E   the absence of container numbers in the report raises a doubt
    as to whether the laboratory has tested the same samples as
    had been sealed and counter signed by the dealer or some
    other contaminated samples. These important questions were
    raised before the writ Court alleging that the samples tested
F   were not of those collected from the respondent-Firm.

       9. In order to ensure fairness in testing the samples, it has
  been provided in clause (D) of para 2.5 of the Guidelines that
  in case of sample failure, in the event of request for testing by
  the dealer, the same shall be tested at Company's Laboratory
G in the presence of representative(s) of the dealer. The re.levant
  extract of clause (D) of para 2.5 reads as under:

          "In case of sample failure, in the event of request for testing
          by the dealer, the same to be considered on merits by the
H         State Office/Regional/Zonal General Manager of the
    BHARAT PETROLEUM CORPORATION LTD. v.                         837
   JAGANNATH & CO. & ORS. [P. SATHASIVAM, J.)

      concerned Oil Company. If approved by GM, the sample               A
      of retail outlet retained by the dealer alongwith the counter
      sample retained with the Field Officer/Oil Company are to
      be tested as per the guidelines, preferably in presence of
      the Field Officer, RO dealer/representative and
      representative of QC department of the Oil Company after           B
      due verification of samples."

        1O. It is rightly pointed out that the samples were not tested
  in any government laboratory and these tests were conducted
  in the company's laboratory itself.. Therefore, in order to satisfy    C
  the conscience of the dealer about the authenticity of the tests
  so conducted, it has been contemplated in the Guidelines that
  on the request of the dealer, the test(s) could be conducted in
   his presence. In Hindustan Petroleum Corporation Ltd. & Ors.
   vs. Mis Super Highway Services & Anr., (2010) 3 SCC 321,
  this Court held that the Guidelines being followed by the              D
  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 terminating the dealership               E
  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         F
   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. It was further held that the cancellation
  of dealership agreement of a party is a serious business and
  cannot be taken lightly. As pointed out in the said decision, in       G
  order to justify the action taken to terminate such an agreement,
  the authority concerned has to act fairly and in complete
  adherence to the rules/guidelines framed for the said purpose.

      11. It is further seen that after sealing of the petrol pump
                                                                         H
    838       SUPREME COURT REPORTS                  [2013] 2 S.C.R.


A in the night of 22.08.2005 by respondent No.6 herein, the
  respondent-dealer waited for the result but no copy of the same
  was given to them. Since the dealer suspected some foul
  game on the part of the said officer, they filed Civil Suit being
  O.S. No. 695 of 2005 before the Civil Judge (Senior Division),
B Saharanpur seeking injunction against the interference with the
  sale and supply of petroleum products. It is brought to our notice
  that immediately upon filing of the said suit, on 31.08.2005, the
  BPCL supplied one copy of the report alleging it to be of the
  samples collected from the RO. The respondent-Firm did not
c believe the said report and requested for fresh sampling of
  products and examination by some independent laboratory. As
  the respondent-Firm did not get any response, they filed an
  application in the pending suit seeking collection of fresh
  samples from the sealed tanks in the presence of Court
D Commissioner and its examination by an independent agency.

        12. In this regard, it is relevant to refer Section 20 of the
    Petroleum Act, 1934 which reads as under:

          "20. Right to require re-test - (1) The owner of any
E         petroleum, or his agent, who is dissatisfied with the result
          of the test of the petroleum may, within seven days from
          the date on which he received intimation of the result of
          the test, apply to the officer empowered under Section 14
          to have fresh samples of the petroleum taken and tested.
F      · (2) On such application and on payment of the prescribed
         fee, fresh samples of the petroleum shall be taken in the
         presence of such owner or agent or person deputed by
         him, and shall be tested in the presence of such owner or
         agent or person deputed by him.
G
          (3) If on such re-test, it appears that the original test was
          erroneous the testing officer shall cancel the original
          certificate granted under Section 19, shall make out a fresh
          certificate, and shall furnish the owner of the petroleum, or
H         his agent, with a certified copy thereof, free of charge."
   BHARAT PETROLEUM CORPORATION LTD. v.                        839
  JAGANNATH & CO. & ORS. [P. SATHASIVAM, J.]
      13. Though the appellant-BPCL protested the said                 A
application contending that the said provision in the Petroleum
Act, 1934 is not applicable and the very same objection was
raised by learned senior counsel for the appellant before us, it
is relevant to quote clause 10(k) of the Dealership Agreement
with which the parties are bound is as under:                          B

    "1 O(k) - To abide by the Petroleum Act, 1934 and the rules
    framed hereunder for the time being in force as also in
    other laws, rules or regulations either of the Government
    or any local body as may be in force."
                                                                       c
In view of the Dealership Agreement, particularly, clause 1O(k)
referred above, the contention of learned senior counsel for the
BPCL is liable to be rejected. In terms of Section 20 of the
Petroleum Act, 1934 the contesting respondents had a right to
have fresh· samples drawn and get the same re-tested within            D
seven days of intimation of the test results. It is the assertion
of the contesting respondents that the test reports were
intimated to them only upon filing of a suit before the trial Court.
After getting the above reports, on 02.09.2005, the contesting
respondents moved an application before the trial Court in the         E
said suit for fresh sampling/retest of the products. Though an
objection was raised for filing counter statement in the said
application, it is brought to our notice that in spite of several
opportunities given by the Court, no such objection was ever
filed. It was further pointed out by learned counsel for the
                                                                       F
contesting respondents that they timely exercised their right
available in law. In view of the application filed by the contesting
respondents on 02.09.2005 and in the light of Section 20 of
the Petroleum Act, 1934 as well as the terms of Dealership
Agreement, the objection raised by learned senior counsel for
the BPCL is liable to be rejected.                                     G

    14. It is also pointed out that it was respondent No.6 herein
who made the inspection, collected the samples, issued show
cause notice and passed an order of cancellation of the
                                                                       H
    840       SUPREME COURT REPORTS                  [2013] 2 S.C.R.


A   Dealership Agreement/Licence. By impleading him as one of
    the respondents - respondent No.4 in the High Court - specific
    allegations were made against him that he acted mala fidely
    in cancelling the same and those assertions cannot be lightly
    ignored.           ·
B      15. The High Court, after considering all the above specific
  claims of the contesting respondents, rightly interfered with the
  order of termination of the dealership agreement/licence dated
  18.01.2006 and quashed the same. We are in entire
  agreement with the said conclusion. In view of the same, the
C appellants are directed to implement the directions given by the
  High Court in the impugned judgment dated 09.10.2009 within
  a period of four weeks from the date of receipt of this judgment.

           16. In the light of the above discussion, the civil appeals
o are dismissed with no order as to costs.
    R.P.                                         Appeal dismissed.