Supreme Court of India
INDIAN OIL CORPORATION LTD.versusNILOFER SIDDIQUI & ORS.
- Citation
- 2015 INSC 875
- Decided
- 1 December 2015
- Disposal
- Dismissed
- Bench
- V GOPALA GOWDA
Holding
The Court held that the standard agreement was never executed and therefore not binding, making condition 8 unconscionable under Article 14; consequently, IOCL's termination was illegal and the distributorship must be restored.
Summary
The Supreme Court examined a dispute where Indian Oil Corporation Ltd (IOCL) terminated the LPG distributorship granted to ex‑servicemen respondents under a letter of allotment that referred to a "standard agreement" which was never supplied or executed. The Court held that, because the standard agreement was not concluded, it could not bind the parties, and thus IOCL could not rely on its terms to justify termination. Condition 8 of the allotment, which allowed unilateral termination without reason, was deemed unconscionable and was read down in light of Article 14 of the Constitution. Consequently, the termination was held illegal, arbitrary and unjustified, and the Court ordered restoration of the distributorship and costs in favour of the respondents. The appeal by IOCL was dismissed.
Issues considered
- Whether IOCL had the right to terminate the distributorship unilaterally under condition 8 of the letter of allotment.
- Whether Section 14(1)(c) of the Specific Relief Act, 1963 is applicable to compel specific performance (restoration) of the distributorship.
- Whether the "standard agreement" referred to in the letter of allotment constituted a concluded contract enforceable against the respondents.
- Whether condition 8 is unconscionable and violative of Article 14 of the Constitution of India.
- Whether the termination was illegal, arbitrary and unjustified.
Legislation cited
- Constitution of Indias. Article 14
- Indian Contract Act, 1872s. 7
- Specific Relief Act, 1963s. 14(1)(c)
Subjects
contract lawspecific reliefunilateral terminationArticle 14government undertakingdistributorshipunconscionable contractstandard form contractex‑servicemenpublic distribution
Judgment
[2015] 13 S.C.R. 1196
A INDIAN OIL CORPORATION LTD.
v.
NILOFER SIDDIQUI & ORS.
(Civil Appeal No. 7266 of 2009)
B
DECEMBER 01, 2015
[V. GOPALA GOWDAAND AMITAVA ROY, JJ.]
Contract - Distribution of gas agency by appellant-
C Corporation - To respondent Nos. 2 and 3 jointly - As per
condition No. 2 of the 'Letter of allotment' the appointment
was to be subject to the, conditions contained in 'standard
agreement', which was to be provided later-As per condition
No. 8 of Jetter of allotment, Corporation was at liberty to
D terminate the distributorship without assigning any reason -
Copy of 'Standard agreement' never supplied to the
respondents - Respondent No .. 2 transferred his share in
favour of his wife (respondent No. 1) - Termination of the
distributorship by the Corporation on the ground of breach of
E terms and conditions of 'Standard agreement' - Respondent
No. 1 filed title suit seeking declaration that the termination
was illegal, arbitrary and unjustified - Suit dismissed by trial
court - First appellate court upheld the order of trial court -
In second appeal, the High Court setting aside the judgments
F of courts below held the termination of distributorship as
illegal, arbitrary and unjustified and directed for restoration
of distributorship - On appeal, held: As per s. 7 of Contract
Act acceptance must be absolute - The Standard agreement
since not supplied to al/ottees, cannot be said to be
G concluded contract - It was legally not binding upon the
allottees as the same was never executed between the
allottees and the Corporation - Therefore, question of
violation of terms and conditions thereof does not arise -
H The Corporation being Government of India undertaking, is
1196
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1197
bound to act fairly and reasonably- Its conduct is subject to A
the scrutiny on the touchstone ofArt. 14 of the Constitution-
Condition No. 8 of allotment letter providing for unilateral
termination without assigning any reason is liable to be read
down in the light ofArt. 14- Direction to Corporation to restore
the distributorship- In the facts of the case, cost of Rs. 1 lakh B
to be paid to respondent Nos. 1 and 2- Contract Act, 1872-
s. 7 - Constitution of India, 1950 - Art. 14 - Public
Distribution.
Specific ReliefAct, 1963- s.14(1)(c)-App/icability of- C
Termination of distributorship of gas agency - The court
holding the termination as illegal restored the distributorship-
Distributorship whether restorable in view of provisions
u/s. 14(1)(c)- Held: Provision u/s.14(1)(c) not applicable to
the facts of the case because neither the contract was D
revocable nor had become void for any reason.
Dismissing the appeal, the Court
HELD: 1.1 Respondent Nos. 2 and 3 got the E
partnership firm registered as per the terms and
conditions of letter of allotment and at least twice
requested the appellant-Corporation to send the
Company's standard agreement for signature, but the
Corporation failed to send it to them. Hence, it can be F
inferred from the pleadings and evidence on record that
the Company's standard agreement was never executed
by them. Both the respondent Nos. 2 and 3 started their
business without the said standard agreement being
signed by both of them. The partnership business G
continued to be regulated by the terms and conditions
of the letter of allotment issued by the Corporation. ·
Hence, the claim of the Corporation that both the
respondent Nos. 2 and 3 were aware of the said standard
agreement is unsusceptible in law. There is nothing on H
1198 SUPREME COURT REPORTS [2015) 13 S.C.R.
A record to show that both the respondent Nos. 2 and 3
had any knowledge or had ever agreed to the terms of
the said standard agreement. The agreement which is
not executed by the parties cannot be legally made
enforceable against them. Therefore, the High Court has
B rightly held that the standard agreement cannot be said
to be legally binding upon respondent Nos. 2 and 3, as
the same has never been executed between the allottes
and the Corporation. [Para 27] (1214-C-F]
C Her Highness Maharani Shanti Devi P Gaikwad
v. Savjibhai Haribhai Patel & Ors. (2001) 5 SCC
101 : 2001 (2) SCR 590 - referred to.
1.2 Section 7 of the Contract Act, 1872, specifically
o provides that acceptance must be absolute. Since the
standard agreement was never supplied to both
respondent Nos. 2 and 3 and the said standard
agreement cannot be said to be executed between the
allottees and the Corporation. Thus, the said standard
E agreement cannot be said to be a concluded contract
between the parties in law. Consequently, it cannot be
made binding upon the allottees of distributorship by
the Corporation. When the said standard agreemer)t is
not binding, then the question of violation of terms and
F conditions does not arise. Rather the Corporation has
violated condition No.2 of the letter of allotment by not
sending the standard agreement to both respondent
Nos. 2 and 3. [Paras 28, 29] (1214-F; 1215-c~o. E-F]
G 1.3 Condition No.8 of the letter of allotment is
unconscionable as it gives the Corporation an
unfettered right to terminate the distributorship without
assigning any reason. In the instant case, respondent
No.2 is far weaker in economic strength and has no
H bargaining power with the Corporation. At the time when
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1199
the letter of allotment was issued, respondent No.2 had A
no other means of livelihood and was dependent on the
grant of Gas agency by the Corporation for sustenance
of himself and family members. The letter of allotment
contains standard terms and respondent Nos. 2 and 3
had no opportunity to vary the same. Condition No.8 of B
letter of allotment provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India. [Para 30) [1215-F-H; 1216-A-B]
c
Central Inland Water Transport Corporation
Limited &Anr. v. Brojo Nath Ganguly &Anr. (1986)
3 sec 156: 1986 (2) SCR 278 - relied on.
Delhi Transport Corporation v. OTC Mazdoor
Congress and Others. 1991 Supp (1) SCC 600 D
: 1990 (1) Suppl. SCR 142; Mahabir Auto Stores
and Ors v. Indian Oil Corporation·& Ors. (1990) 3
sec 752: 1990 (1) SCR 818-followed.
1.4 The appellant-Corporation being a Government E
of India Undertaking is bound to act fairly and reasonably
and its CQl'lduct is subject to scrutiny on the touchstone
of Article 14 of the Constitution of India. [Para 31] [1218-A]
2. The High Court in the impugned judgment and F
order has rightly held that the provision under section
14(1)(c) of Specific Relief Act, 1963 is not applicable to
the facts and circumstances of the instant case, because
from the letter of allotment and the conduct of the p·arties,
it appears that neither the contract was revocable nor it G .
had become void for any reason whatsoever. [Para 36)
[1219-E]
Indian Oil Corporation Ltd. v. Amritsar Gas
Services & Ors. (1991) 1 SCC 533 : 1990 (3)
Suppl. SCR 196 - distinguished. H
1200 SUPREME COURT REPORTS [2015) 13 S.C.R.
A 3. The Cou.rt observed that the appellant-·
Corporation must be very cautious and careful while
exercising its power to terminate the distributorship of
this nature. [Para 39] [1220-B]
B 4. The respondents have been litigating for a period
of around 37 years, spending precious time in the courts
. of law seeking justice for themselves. Respondent Nos.
2 and 3 are ex-servicemen in whose favour the
distributorship was awarded, the same was terminated
C arbitrarily and unfairly. This conduct on the part of· the
Corporation defeats the laudable object of the scheme
of the Government of India by which distributorship was
allotted in favour of the ex-defence personnel, war-
widows and dependants. Thus, respondent Nos. 1 & 2
D deserve to be awarded with costs. The cost of Rs. 1 lakh
be paid to respondent Nos.1and2. [Paras 40, 41] [1220-
C-E, G]
Case Law Reference
E 2001 (2) SCR 590 referred to Para 18
1986 (2) SCR 278 relied on Para 23
1990 (1) Suppl. SCR 142 followed Para 23
F 1990 (1) SCR 818 followed Para 24
1990 (3) Suppl. SCR 196 distinguished Para 33
· CJVIL APPELLATE JURISDICTION : Civil Appeal No.
7266 of 2009.
G
From the Judgment and Order dated 03.07.2007 of the
High Court of Patna in Second Appeal No. 516of1988.
Ms. Pinky Anand, ASG, Mrs. Priya Puri, Ms. Somya
Rath ore, Advs., for the Appellant.
H
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1201
Kapil Sibal, Salman Khurshid, Sr.Advs., Ravi Chandra A
Prakash, lmtiayazAhmad, Nizam Pasha, Ms. Sushma Singh,
Mukesh Kr. Singh, Purushottam Sharma Tripathi, Prabhash
Kr. Yadav, V. K. Monga,Advs., forthe Respondents.
Abdus Shafi Siddiqui (Respondent-In-Person) B
The Judgment of the Court was delivered by
V. GO PALA GOWDA, J. 1. This Civil Appeal is directed
against the impugned judgment and order dated 03.07 .2007
passed by the High Court of Judicature at Patna in Second C
Appeal No. 516of1988 whereby it has set aside the impugned
judgment and orders therein passed by the courts below on
the ground that both the courts below not only committed error
of record by misconstruing the facts and evidence on record
but also ignored the specific provisions of law as well as the D
necessary and relevant case laws and also wrongly held that
the Title Suit No. 68 of 1978 was barred by the principles of
res judicata.
2. The facts which are required to appreciate the rival E
legal contentions urged on behalf of the parties are stated in
brief hereunder:
The appellant-Indian Oil Corporation Limited (for short
"IOCL") in the year 1971 invited applications from eligible F
persons under the scheme for awarding the distributorship of
lndane Gas (LPG) Agencies in the town of Muzaffarpur, Bihar.
The said distributorship was reserved for ex-defence
personnel, war-widows and dependants. The respondent no.2-
Ex-Captain A.S. Siddiqui and respondent no.3-Ex-Captain Jai G
Narain Prasad Nishad applied for the said distributorship and
got it. On 15.10.1971 IOCL offered the said distributorship to
respondent nos. 2 and 3 along with a third person provided
they agreed to enter into a partnership to run the business of
H
1202 SUPREME COURT REPORTS [2015] 13 S.C.R.
.A distribution of lndane Gas. This was done with a view to
rehabilitate more ex-servicemen in the country. However, the
third person refused to form partnership.
3. The IOCL through its letter no. Sales/LPG/ERN/3623
B dated 21.10.1971 (hereinafter referred to as "letter of
allotment") allotted distributorship of lndane Gas to respondent
nos.2 and 3 subject to the terms and conditions mentioned
therein. Condition no.2 of the said letter is stated hereunder:
C "Condition no.2: This appointment is subject to the conditions
contained in our standard agreement which will be
sent to you in due course for your signature and
you shall sign and return the same to us."
Further condition no.8 of the said letter reads thus:
D "TERMINATION:
Condition no.8: Notwithstanding anything contained herein,
the Corporation shall be at liberty to terminate your
distributorship without assigning any reason
E whatsoever by giving you 30 days notice in writing
of intention to do so and upon.the expiry of the said
notice your distributorship shall stand cancelled and
terminated without prejudice to the rights of the
Corporation in respect of any matter or thing
F antecedent to such termination."
4. On 17.11.1971 the partnership deed was signed
between respondent nos.2 and 3 to carry on the business of
distribution of lndane Gas at Muzzafarpur under the name and
G style of Mis Happy Homes (respondent no.4) on various terms
and conditions. Condition no.12 of the said partnership deed
reads thus:
"12.No partner shall without the consent of the other
partner obtained in writing for the purpose of any of the
H following acts:-
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1203
[V. GOPALA GOWDA, J.]
a. Engage while he is a partner or be directly or A
indirectly concerned, in may business other, than
that of and competing with the business of the firm.
xxx xxx xxx
B
h. Assign or mortgage his share in the partnership or
attempt to introduce and consider as partner ... "
5. The respondent no.2 through letter no.59582 dated
04.11.1971 requested the IOCL for supply of the copy of the
standard agreement as referred to in condition no.2 of the letter C
of allotment issued by IOCL. IOCL vide letter dated 12.11.1971
had given an assurance to them to send the said agreement
in due course. The respondent no.2 through letter dated
16.12.1971 again requested for a copy of the said standard D
agreement from IOCL. IOCL vide letter no. 3622 dated
31.12.1971 allayed apprehension of both respondent nos.2
and 3 on the score of non-availability of the said standard
agreement and the termination of distributorship. The relevant
part of the said letter no. 3622 reads thus:
E
"... This agreement will be given to you in due course.
There is absolutely no secrecy maintained about
anything and the agreement as and when ready, would
be sent to you ...
F
xx xx xx
Please in the meantime, we would like you to progress
fast regarding commissioning the market. .. "
G
6. From 23.03.1972 the partnership firm-Mis Happy
Homes started the business of distribution of lndane Gas
without the said standard agreement by both the respondent
nos. 2 and 3. The distributorship continued to be regulated by
the terms of the letter of allotment issued by IOCL to them.
H
1204 SUPREME COURT REPORTS [2015] 13 S.C.R.
A 7. The business of the partnership firm went on smoothly
for some time. After few months differences arose between
the partners i.e., respondent nos. 2 and 3 due to certain
irregularities committed by respondent no.3. The interference
of IOCL was sought by respondent no. 2 for the settlement of
B the said dispute. However, IOCL refused to interfere and asked
the partners to settle their dispute themselves. On 27 .02.1973
the respondent no. 2 wrote a letter to Directorate General of
Resettlement, Ministry of Defence (for short "DGR") with a
copy of the same to the Minister of Defence and the Minister
C of Petroleum requesting either to split the partnership business
into two or to permit him to transfer his share in the partnership
in the name of his wife Mrs. Nilofer Siddiqui (respondent no.1)
or his father Ex-Captain M. Ozair or the widow of Late Captain
D M. Ammar in whose partnership he had actually applied for
the distributorship.
8. On 31.10.1973 both respondent nos.2 and 3 went to
Calcutta to meet the Branch Manager, IOCL. The respondent
no.2 expressed his desire to transfer his share in the
E partnership in the name of either his wife or his father. The
respondent no.3 gave oral consent to the desire expressed
by respondent nq.2. Later, the respondent no.3 confirmed his
oral consent by writing a letter dated 15.11.1973 addressed
F to the Branch Manager, IOCL.
9. The respondent no.2 through letter dated 17 .11.1973
addressed to the Branch Manager, IOCL sought IOCL's
permission to transfer his share in the partnership in the name
of either his wife or his father. On 02.1.197 4, the respondent
G no.2 joined Bihar Government _Services as Deputy
Superintendent of Police.
10. IOCL vide letter dated 25.02.1974 refused to
accede to the request for transfer of shares made by
H respondent no.2 and stated thus:
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1205
[V. GOPALA GOWDA, J.]
" ... you may recall that during the discussions you had A
with the undersigned as well as our Branch Sales
Manager Sri SC Ghosh alongwith your partner, it was
clearly advised that unless all the set backs/irregularities
under which the distributorship is being operated are
set aside, we shall not be forwarding any such request." B
11. Thereafter, the respondent no.2 again wrote a letter
on 03.3.1975 to the DGR along with a copy of it to IOCL with
same request but, DGR vide letter dated 27.3.1975 refused
to accede to the request made by the respondent no.2. The C
same request was also refused by IOCL vide letter dated
17.4.1975.
12. By a notice published in the daily newspaper 'Indian
Nation' the respondent no.2 indicated his intention to transfer D
his share in M/s Happy Homes in favour of his wife i.e.,
respondent no.1 and invited objections to the same, if any.
The IOCL vide its letter No. Sales/LPG/3710 dated 16.01.1978
terminated the distributorship. The relevant portions of the said
letter are extracted as under: E
"It was clearly understood that you will not take up any
other business or employment during the continuation
of the aforesaid distributorship vide his letter of
November, 1973 and September, 1975 Capt. Siddiqui F
has approached us for our permission to his transferring
his share in the aforesaid Distributorship to his father
which was not acceded to and he was advised to choose
one or the two i.e., either to keep his job or remain our
distributor. In addition it was also made clear to you by G
us and also the Directorate General of Resettlement
that he cannot be allowed to transfer his share to his
father. But he has persisted with the breach and violation
of this agreement and did not resign from the job.
H
1206 SUPREME COURT REPORTS [2015] 13 S.C.R.
A xx xx xx
In view of the foregoing it has been decided to terminate
your distributorship and this letter may be treated as
our notice for this purpose. Please note that your
B distributorship rights shall stand terminated and
cancelled on expiry of the period of 30 days without
prejudice to the rights of the corporation in respect of
any matter or thing antecedent to such termination."
13. On 23.1.1978, the respondent no.2 executed a deed
c
of transfer (Baimokasa) in favour of his wife i.e., respondent
no.1 whereby he transferred his share in the partnership in the
name of his wife.
14. On 9.6.1978, the respondent no.1 instituted a Title
D Suit no. 68of1978 in the court of Executive Munsif, Muzaffarpur
seeking declaration that termination of the distributorship by
IOCL vide letter dated 16.01.1978 was illegal, arbitrary and
unjustified. The respondent no.1 also prayed for restoration of
E the distributorship. The trial court vide its judgment and order
dated 11.04.1985 dismissed the said suit holding, inter alia,
that respondent no.2 had no right to transfer.his share in the
partnership in the name of his wife i.e., respondent no.1.
15. Aggrieved by the decision of the trial court, the
F respondent no.1 preferred Title Appeal no. 32 of 1986 in the
court of Additional District Judge, Muzaffarpur. The first
appellate court vide its judgment and order dated 13.06.1988
dismissed the appeal and upheld the decision of the trial court.
G 16. Aggrieved by the decision of the first appellate court,
the respondent no.1 preferred Second Appeal no. 516of1988
in the High Court of Judicature at Patna by framing certain
substantial questions of law and urged various tenable grounds
in support of the same. The High Court vide its judgment and
H
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1207
[V. GOPALA GOWDA, J.]
order dated 03.07.2007 allowed the appeal by setting aside A
the judgments and orders passed by the courts below. It
declared that the letter of termination dated 16.01.1978 issued
by IOCL in terminating distributorship of respondent no.2 to
be illegal, arbitrary and unjustified and gave direction for
restoration of the distributorship. Hence, this appeal is filed by B
the appellant questioning the correctness of the impugned
judgment and order by framing certain questions of law.
17. We have carefully heard Ms. Pinky Anand, the
learned Additional Solicitor General on behalf of appellant-IOCL C
and Mr. Kapil Sibal, the learned senior counsel on behalf of
respondent nos. 1, 2& 4. On the basis of factual evidence on
record produced before us, the circumstances of the case and
also in the light of the rival legal contentions urged by the
learned senior counsel on behalf of both the parties, we have D
broadly framed the following points which require our attention
and consideration-
i. Whether IOCL had the right to terminate the
distributorship of respondent nos. 2 and 3? E
ii. Whether the provision of Section 14(1 )(c) of the
Specific Relief Act, 1963 is applicable in the instant
case?
iii. What order? F
Answer to Point No.1
18. Ms. Pinky Anand, the learned Additional Solicitor
.General on behalf of the appellant-IOCL contended that IOCL
had the right to terminate the distributorship without assigning G
any reason. She submitted that the High Court has incorrectly
held that IOCL violated Condition no.8 (supra) of the terms
and conditions as mentioned in the letter of allotment dated
21.10.1971 by terminating the distributorship without giving·
H
1208 SUPREME COURT REPORTS [2015] 13 S.C.R.
A 30 days notice to respondent no.2 which was apre"requisite
condition. She further submitted that the said 30 days notice
as required under condition no.8 was given in the notice of
termination itself. She placed reliance upon the decision of
this Court in the case of Her Highness Maharani Shanti Devi
B P. Gaikwad II. Savjibhai Haribhai Patel & ors. 1• The relevant
portion of the judgment cited by her reads thus:
· 54 .. "5 .... it is the court's duty to give effect to the bargain
of the parties according to their intention and when that
c bargain is in writing the intention is to be looked for in
the words used unless they are such that one may
suspect that they do not convey the intention correctly. If
those words are clear, there is very little that the court
has to do. The court must give effect to the plain meaning
D of the words however it may dislike the result. We have
earlier set out clause 10 and we find no difficulty or doubt
as to the meaning of the language there used. Indeed
the language is the plainest. .. " ·
E Thus, the termination of the distributorship of the lndane Gas
of respondent no.2 was legal, proper and justified according
to the terms and conditions in the letter of allotment issued by
IOCL which the High Court had failed to consider and
appreciate the same while recording its findings and answering
F the said substantial question of law.
19. It was further contended by her that the High Court
has erred in coming to the conclusion that respondent nos. 2
and 3 have not committed any breach of the terms and
G conditions of the standard agreement on the ground that the
same was never supplied to them. The finding of the High Court
on this point is not only bad in law but also factually wrong. She
submitted that the evidence on record clearly shows that
respondent nos. 2 and 3 were shown the terms of the standard
H 1 (2001)5SCC101
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1209
[V. GOPALA GOWDA, J.]
agreement and were specifically made aware of clause 21 A
which prohibited the partners from assigning their shares in
favour of outsiders without the consent of IOCL. The fact that
respondent no.2 repeatedly sought permission from IOCL for
assigning his share to his wife clearly shows that he was aware
of such a condition in the agreement. Clause 21 of the B
standard agreement reads thus:
"21. The distributor shall not sell, assign, mortgage or
part with or otherwise transfer his interest in the
distributorship or the right, interest or benefit conferred C
on him by this agreement to any person. In the event of
the Distributor being a partnership firm any change in
constitution of the firm, whether by retirement,
introduction of new partners or otherwise howsoever will
not be permitted without the previous written approval D
of the Corporation notwithstanding that the Corporation
may have dealings with such reconstituted firm or
impliedly waived or condoned the breach or default
mentioned hereinabove by the Distributor ... "
E
20. She further submitted that the validity of termination
of distributorship has to be tested on the principles of private
law and the law of contract and not on the touchstone of
constitutional or public law. In the present case the question
involved is purely a question of breach of contract alone F
between the parties for which the respondent no.1 & 2 at best
if they prove the breach on the part of the appellant they are
entitled for damages but not declaratory remedy and
consequential relief as prayed in the plaint.
G
21. Per contra, Mr. Kapil Sibal, the learned senior counsel
on behalf of respondent nos.1, 2 & 4 sought to justify the
impugned judgment and order passed by the High Court by
urging various factual as well as legal contentions in justification
of the impugned judgment. H
1210 SUPREME COURT REPORTS [2015] 13 S.C.R.
A 22. It was further contended by him that both the
respondent nos. 2 and 3 have fulfilled all the terms and
conditions of the letter of allotment of distributorship which was
given to them by IOCL. It is IOCL which has violated the said
terms and conditions by not sending a copy of the standard
B agreement despite repeated demands made by respondent
no.2 to IOCL. Both the respondent nos. 2 and 3 started their
business on 23.03.1972 on the basis of the letter of allotment.
At no point of time they were made acquainted with the terms
and conditions of the standard agreement by IOCL. He further
C submitted that the agreement which is not executed by the
parties cannot be legally made enforceable against them.
Therefore, the terms and conditions of the standard agreement
cannot be made binding upon them as they have not executed
the same. Thus, the termination of the distributorship of lndane
0
Gas as per the terms and conditions enumerated in the said
standard agreement is illegal as has been rightly held by the
High Court in its reasoned judgment by answering the
substantial question of law in favour of respondent nQ.1 & 2.
E 23. It was further contended by him that as per condition
no.8 of the letter of allotment IOCL reserved the right to
terminate the distributorship without assigning any reason by
giving 30 days notice in writing. The purpose of the said 30
F days notice was to afford time to both the respondent nos. 2
and 3 to advance their explanation against such intended
termination made by the IOCL by invoking its right under
condition no.8. He further submitted that IOCL itself has
completely violated the terms enumerated in condition no.8 of
G letter of allotment. It has arbitrarily terminated the distributorship
by issuing a letter without giving any notice to them by giving
irrelevant reasons which is in violation of the principles of natural
justice as well. In his further submissions he assailed the
condition no.8 of the letter of allotment itself. He submitted that
H the said condition is unconscionable in so far as it gave IOCL
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1211
[V. GOPALA GOWDA, J.]
an unfettered right to terminate the distributorship of lndane A
Gas in favour of both the respondent nos. 2 & 3 without
assigning any reason whatsoever. He fortified his submission
by placing strong reliance upon the decision of this Court in
Central Inland Water Transport Corporation Limited &
Anr. \/. Brojo Nath Ganguly &Anr. 2 which has been followed B
by the Constitution Bench of this Court in the case of Delhi
Transport Corporation v. DTC Mazdoor Congress and
Others. 3 The relevant pa_ragraph from Central Inland Water
Transport's case (supra) cited by the learned senior counsel
is extracted in the later part of this judgment. · C
24. It was further contended by him that IOCL, being a
Government of India Undertaking is bound to act fairly and its
conduct is subject to scrutiny on the touchstone of Article 14 of
the Constitution of India. He further submitted that it is clear D
from the evidence on record that the action of IOCL was high
handed and arbitrary. He placed strong reliance upon the
decision of this Court in the case of Mahabir Auto Stores
and Ors v. Indian Oil Corporation & Ors. 4 Paragraph 12 of
the aroresaid case reads thus: E
"12. It is well settled that every action of the State or an
instrumentality of the State in exercise of its executive
power, must be informed by reason. In appropriate
ca<>es, actions uninformed by reason may be F
questioned as arbitrary in proceedings under Article 226
or Article 32 of the Constitution. Reliance in this
connection may be placed on the observations of this
Court in Radha Krishna Agarwal v. State of Bihar. It
appears to us, at the outset, that in the facts and G
circumstances of the case, the respondent company IOC
is an organ of the State or an instrumentality of the State
2
(1986) 3 sec 156
' 1991 Supp (1) sec 600
• (1990) 3 sec 752 H
1212 SUPREME COURT REPORTS [2015] 13 S.C.R.
A as contemplated under Article 12 of the Constitution.
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.
B Therefore, the action of State organ under Article 14
can be checked. See Radha Krishna Agarwal v. State
of Bihar at p. 462, 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
c . entered into, to call upon the State to account for its
actions in its manifold activities by stating reasons for
·such actions. In a situation of this nature certain activities
of the respondent company which constituted State
under Article 12 of the Constitution may be in certain
D
circumstances subject to Article 14 of the Constitution
in entering or not entering into contracts and must be
reasonable and taken only upon lawful and relevant
consideration; it depends upon facts and circumstances
of a particular transaction whether hearing is necessary
E
and reasons have to be stated. In case any right
conferred on the citizens which is sought to be
interfered, such action is subject to Article 14 of the
Constitution, and must be reasonable and can be taken
F only upon lawful and relevant grounds of public interest.
Where there is arbitrariness in State action of this type
of entering or not entering into contracts, Article 14
springs up and judicial review strikes such an action
down. Every action of the State executive authority must
G be subject to rule of law and must be informed by reason.
So, whatever be the activity of the public authority, in
such monopoly or semi-monopoly dealings, it should
meet the test of Article 14 of the Constitution. If a
governmental action even in the matters of entering or
H
INDIAN OIL CORPORATION LTD. v. NILOFER SIDDIQUI 1213
[V. GOPALA GOWDA, J.]
not entering into contracts, fails to satisfy the test of A
reasonableness, the same would be unreasonable. In
this connection reference may be made to E.P
Royappa v. State of Tamil Nadu, Maneka Gandhi v.
Union of India, Ajay Hasia v. Khalid Mujib Sehravardi,
R.D. Shetty v. International Airport Authority of India B
and also Dwarkadas Marfatia and Sons v. Board of
Trustees of the Port of Bombay. It appears to us that
rule of reason and rule against arbitrariness and
discrimination, rules of fair play and natural justice are
part of the rule of law applicable in situation or action by C
State instrumentality in dealing with citizens in a situation
like the present one. Even though the rights of the
citizens are in the nature of contractual rights, the
manner, the method and motive of a decision of entering D
or not entering into a contract, are subject to judicial
review on the touchstone ·of relevance and
reasonableness, fair play, natural justice, equality and
non-discrimination in the type of the transactions and
nature of the dealing as in the present case." E
25. Mr. V.K. Monga, the learned counsel on behalf of
respondent no.3 in his contentions supported the arguments
advanced by Ms. Pinky Anand, the learned ASG on behalf of
appellant-IOCL.
F
26. After careful considerations of the findings of the
High Court both on fact and law and considering the rival legal
submissions made on behalf of the parties, we agree with the
arguments advanced by Mr. Kapil Sibal. We have examined
the material on record and on the basis of the admitted facts, G
it is clear that there is no dispute that the appellant-IOCL offered
distributorship of lndane Gas (LPG) to respondent nos.2 and
3 vide its letter of allotment dated 21.10.1971 on certain terms
and conditions.
H
1214 SUPREME COURT REPORTS [2015] 13 S.C.R.
A It is also an admitted fact that both respondent nos. 2
and 3 got the partnership firm registered as per the terms and
conditions of letter of allotment and at least twice requested
IOCL to send the Company's standard agreement for
signature, but IOCL failed to send it to them. Hence, it can be
B inferred from the pleadings and evidence on record that the
Company's standard agreement was never executed by them.
27. On 23.03.1972 both the respondent nos. 2 and 3
started their business without the said standard agreement
C being signed by both of them. The partnership business
continued to be regulated by the terms and conditions of the
letter of allotment issued by IOCL. Hence, the claim of IOCL
that both the respondent nos. 2 and 3 were aware of the said
standard agreement is unsusceptible in law. There is nothing
D on record to show that both the respondent nos. 2 and 3 had
any knowledge or had ever agreed to the terms of the said
standard agreement. We agree with the submission made by
Mr. Sibal that the agreement which is not execut.ed by the
parties cannot be legally made enforceable against them.
E Therefore, the High Court has rightly held that the standard
agreement cannot be said to be legally binding upon the
respondent nos. 2 and 3 as the same has never been executed
between the allottes and IOCL.
F 28. Further, Section 7 of the Indian Contract Act 1872,
specifically provides that acceptance must be absolute. It
reads thus:
"In order to convert a proposal into a promise the
G acceptance must-
(1) be absolute and unqualified.
(2) be expressed in some usual and reasonable manner,
unless the proposal prescribes the manner in which it
is to be accepted. If the proposal prescribes a manner
H in which it is to be accepted; and the acceptance is not
INDIAN OIL CORPORATION LJD. v. NILOFER SIDDIQUI 1215
[V. GOPALA GOWDA, J.]
made in such manner, the proposer may, within a A
reasonable time after the acceptance is communicated
to him, insist that h.is proposal shall be accepted in the
prescribed manner, and not otherwise; but; if he fails to
do so, he accepts the acceptance."
B
It is clear from the pleadings and evidence on record that the
standard agreement was never supplied to both the respondent
nos. 2 and 3 and the said standard agreement cannot be said
to be executed between the allottes and IOCL. Thus, as per
the facts and circumstances of the case and also in the light of c
the aforesaid statutory provision of the Contract Act, the said
standard agreement in question cannot be said to be a
concluded contract between the parties in law. Consequently,
it cannot be made binding upon the allottes of distributorship
bylOCL. D
29. As far as the alleged violation of clause 21 (supra) of
the standard agreement by respondent nos. 2 and 3 is
concerned, it is clear that the said standard agreement is not
binding upon the parties for the reasons stated supra and when E
the said standard agreement is not binding, then the question
of violation of terms and conditions does not arise. Rather IOCL
has violated condition no.2 (supra) of the letter of allotment by
not sending the standard agreement to both the respondent
nos. 2 and 3. F
30. We agree with the contentions advanced by Mr. Sibal
that condition no.8 of the letter of allotment is unconscionable
as it gives IOCL an unfettered right to terminate the
distributorship without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength and has G
no bargaining power with IOCL. At the time when the letter of
allotment was issued, respondent no.2 had no other means of
livelihood and was dependent on the grant of lndane Gas
agency by IOCL for sustenance of himself and family members. H
1216 SUPREME COURT REPORTS (2015] 13 S.C.R.
A The letter of allotment contains standard terms and respondent
nos. 2 and 3 had no opportunity to vary the same. Condition
no.8 of letter of allotment provides for unilateral termination of
distributorship without assigning any reason which is liable to
be read down in the light of Article 14 of Constitution of India
B as well as observations made by this court in Central Inland
Water Corporation Limited's case (supra). The relevant
paragraph cited by the learned senior counsel is
reproduced hereunder:
"89. Should then our courts not advance with the times?
c Should they still continue to cling to outmoded concepts
and outworn ideologies? Should we not adjust our
thinking caps to match the fashion of the day? Should
all jurisprudential development pass us by, leaving us
floundering in the sloughs of 19th century theories?
D
Should the strong be permitted to push the weak to the
wall? Should they be allowed to ride roughshod over
the weak? Should the courts sit back and watch supinely
while the strong trample underfoot the rights of the weak?
E We have a Constitution for our"country. Our judges are
bound by their oath to "uphold the Constitution and the
laws". The Constitution was enacted to secure to all the
citizens of this country social and economic justice.
Article 14 of the Constitution guarantees to all persons
F equality before the law and the equal protection of the
laws. The principle deducible from the above .
discussions on this part of the case is in consonance
with right and reason, intended to secure social and
economic Justice and conforms to the mandate of the
G great equality clause in Article 14. This principle is that
the courts will not enforce and will, when called upon to
do so, strike down an unfair and unreasonable contract,
or an unfair and unreasonable clause in a contract,
entered into between parties wt:io are not equal in
H bargaining power. It is difficult to give an exhaustive list
INDIAN OIL CORPORATION LTD. v. NILOFERSIDDIQUI 1217
[V. GOPALA GOWDA, J.]
of all bargains of this type. No court can visualize the A
different situations which can arise in the affairs of men.
One can only attempt to give some illustrations. For
instance, the above principle will apply where the
inequality of bargaining power is the result of the great
disparity in the economic strength of the contracting B
parties. It will apply where the inequality is the result of
circumstances, whether of the creation of the parties or
not. It will apply to situations in which the weaker party
is in a position in which he can obtain goods or services
or means of livelihood only upon the terms imposed by C
the stronger party or go without them. It will also apply
where a man has no choic~. or rather no meaningful
choice, but to give his assent to a contract or to sign on
the dotted line in a prescribed or standard form or to D
accept a set of rules as part of the contract, however
unfair, unreasonable and unconscionable a clause in
that contract or form or rules may be. This principle,
however, will not apply where the bargaining power of
the contracting parties is equal or almost equal. This E
principle may not apply where both parties are
businessmen and the contract is a commercial
transaction. In today's complex world of giant
corporations with their vast infrastructural organizations
and with the State through its instrumentalities and F
agencies entering into almost every branch of industry
and commerce, th_ere can be myriad situations which
result in unfair and unreasonable bargains between
parties possessing wholly disproportionate and unequal
bargaining power. These cases can neither be G
enumerated riorfully illustrated. The court must judge
each case on its own facts and circumstances."
31. Further, it has been rightly contended by the learned
senior counsel Mr. Sibal by placing reliance upon Mahabir
H
1218 SUPREME COURT REPORTS [2015] 13 S.C.R.
A Auto Stores's case (supra) that IOCL being a Government of
India Undertaking is bound to act fairly, reasonably and its
conduct is subject to scrutiny on the touchstone of Article 14 of
the Constitution of India.
Answer to Point No.2
8
32. Ms. Pinky Anand, the learned Additional Solicitor
General on behalf of the appellant-IOCL contended that the
High Court has erred in granting the relief of restoration of
distributorship as the same is contrary to the provision of
C Section 14( 1)( c) of the Specific Relief Act, 1963 (for short "the
Act"). She further contended that the agreement in the instant
case is determinable in nfjture and as per the provision of
Section 14 (1 )(c) of the Act, the agreement which is
determinable in nature cannot be specifically enforced by the
0
court. Thus, the High Court has erroneously held that the
provision of Section 14( 1 )( c) of the Act is not applica_ble to the
facts situation of the case.
33. She further contended that the High Court has wrongly
E directed IOCL to restore the terminated distributorship as the
same is bad in law. She submitted that once a distributorship,
even if it is terminated in breach of the contract, cannot be
restored in favour of the respondent no. 2 and the only remedy
F available is to claim damages from IOCL. She placed strong
reliance upon the judgment of this Court in the case of Indian
Oil Corporation Ltd. v. Amritsar Gas Services &Ors. 5
34. On the other hand, Mr. Kapil Sibal, the learned senior
counsel contended that the question of maintainability of suit
G under Section 14(1 )(c) of the Act was n~ver raised by IOCL
either before the trial court or before the first appellate court.
He further submitted that it is apparent from the letter of
allotment and the conduct of the parties that neitherthe contract .
H ' (1991) 1 sec 533
INDIAN OIL CORPORATION LTD. v. NILOFERSIDDIQUI 1219
[V. GOPALA GOWDA, J.]
was revocable nor it had become void for any reason. Thus, A
the provision of Section 14( 1)( c) of the Act is not attracted in
the instant case as has been rightly held by the High Court.
35. He further contended that the Amritsar Gas Services
& Ors. case (supra) relied upon by IOCL in its contentions has B
no relevance in the instant case for the reason that the said
case relates to the Law of Arbitration. In the instant case, it is
clear from the letter of allotment that there was no arbitration
clause enumerated therein to attract the Law of Arbitration and
related case laws. C
36. We agree with the contentions advanced by the
Mr. Sibal. The High Court in the impugned judgment and order
has rightly held that the provision under section 14(1 )(c) of the
Act is not applicable to the facts and circumstances of the D
instant case. It held thus:
"10.(iii) Furthermore, from the terms of agreement,
namely, the letter of allotment and the conduct of the
parties, it appears that neither the contract was
revocable nor it had become void for any reason E
whatsoever. Hence, provision of Section 14(1 )(c) of the
Specific Relief Act is not applicable to the facts and
circumstances of the instant case and the suit cannot
be legally held to be maintainable under the said F
provision ... "
37. Furthermore, from a perusal of letter of allotment, it
is clear that there is no arbitration clause therein. Thus, the
case of Amritsar Gas Services (supra) relied upon by IOCL
in its contentions is of no relevance. G
Answer to Point No.3
38. For the reasons mentioned supra we are of the view
that no error has been committed by the High Court in setting H
1220 SUPREME COURT REPORTS [2015] 13 S.C.R.
A aside the erroneous findings of the trial court as well as the
first appellate court in its judgments and orders.
39. The facts and circumstances of this case are such
that we are constrained to make observation that the appellant-
s IOCL must be very cautious and careful while exercising its
power to terminate the distributorship of this nature. For the
aforesaid reasons the appeal is liable to be dismissed.
40. On the issue of cost, we are of the opinion that since
C the respondents have been litigating for a period of around 37
years, spending precious time in the courts of law seeking
justice for themselves, they are entitled thereto in the facts and
circumstances of the case. The respondent nos. 2 and 3 are
ex-servicemen in whose favour the distributorship was
D awarded, the same was terminated arbitrarily and unfairly. This
conduct on the part of IOCL defeats the laudable object of the
scheme of the Government of India by which distributorship
was allotted in favour of the ex-defence personnel, war-widows
and dependants. Thus, respondent nos. 1 & 2 deserve to be
E awarded with costs.
41. Accordingly, we pass the following order-
i) This Civil Appeal is dismissed. The order dated
13.12.2007 granting stay shall stand vacated.
F ii) We direct the appellant-IOCL to restore the LPG
distributorship in favour of respondent nos. 1 or 2 and 3
forthwith and submit a compliance report to this court.
iii) The cost of Rs. 1 lakh be paid to respondent nos. 1
and 2 within four weeks from the date of receipt of the
G copy of the Judgment.
iv) All pending applications are disposed of.
Kalpana K. Tripathy Appeal dismissed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "contract law"Sign in to search