Holding

A State instrumentality's decision to refuse or discontinue a contract must be reasonable and non‑arbitrary; IOC's abrupt termination of supplies violated Article 14 and is subject to judicial review.

Summary

Mahabir Auto Stores, a partnership firm that had been distributing Indian Oil Corporation's (IOC) lubricants since 1965, filed a writ petition under Article 226 seeking a mandamus directing IOC to continue supply after the corporation abruptly stopped deliveries on 27 May 1983. The High Court dismissed the petition, holding that no enforceable contract existed and that the matter was a private law dispute. On appeal, the Supreme Court held that IOC is an organ of the State under Article 12 and that its exercise of executive power in entering or refusing contracts is subject to Article 14's requirement of reasonableness and non‑arbitrariness. The Court found that the unilateral termination of a long‑standing supply arrangement without notice or hearing was arbitrary, violative of natural justice, and therefore reviewable under Articles 14, 32 and 226. Consequently, the High Court's order was set aside and the matter was remitted to IOC to reconsider the continuance of the arrangement in a fair and reasonable manner. The appeal was allowed.

Issues considered

The applicability of Article 12 to Indian Oil Corporation as a State instrumentality.
Whether the State's decision to discontinue a supply contract without reason falls within the ambit of Article 14's prohibition of arbitrariness.
Whether a writ of mandamus is maintainable in a dispute arising from an alleged commercial contract with a State‑owned corporation.

Legislation cited

Companies Act, 1956

Subjects

State instrumentalityArticle 14ArbitrarinessJudicial reviewPublic lawNatural justiceContractual rightsIndian Oil CorporationDistributorshipWrit of mandamus

Judgment

MAHABIR AUTO STORES & ORS.
A
v.
INDIAN OIL CORPORATION & ORS.

MARCH 6, 1990

B [SABYASACHI MUKHARJI CJ. AND B.C. RAY, J.]

Constitution of India 1950-Artic/e 14, 32, 226 and 298 -State
organ-Action of entering or not entering into contracts with individual
parties-Whether can be questioned in writ jurisdiction.

The appellant-firm had been carrying on the business of distribu-
c tion and sale of all kinds of lubricants received from the respondent, a
statutory corporation, since 1965. It is the case of the appellant that it
acted as Lube distributor of the respondent corporation and that it had
been given the Customer No. during the course of business. The appel-
lant claimed that from Feb. 1965 to 27th May, 1983, it had received and
D uplifted the supply of lubricants/goods each year and the total quantitY,
of lubricantst11oods thus lifted had gone upto the extent of 1,11,34854
litres or kgs. The respondent suddenly stopped the supply of lubricants
to the appellant-firm on 27 .5.1983. The appellant-firm made several
representations to the respondent against the aforesaid action of the
respondent but to no use. The appellant thereupon filed a writ petition
E in the High Court praying for a writ of mandamus directing the respon-
dent to desist from denying or discontinuing the supply of lubricants
and thereby save the appellant from being ousted from the business;
claim for damages from the date the supply was discontinued was also
made.

F Before the High Court, it was inter alia contended by the appel-
lant that the correspondent that passed between the appellant and
respondent and the invoices issued during the long years of business
would show that the respondent always treated the appellant as its
agent and distributor; sudden stoppage of supply violated the principles
of natural justice. It therefore sought the specific performance of the
G alleged contract. The respondent on the other hand questioned the
maintainability of the petition as according to it the respondent was not
a 'State' within t!Je meaning of Art. 12 of the Constitution. It further
averred that there was no concluded contract by the respondent with
the appellant and that the work continued under an adhoc arrange-
ment; that the policies of the respondent were governed by the
H guidelines/directions issued to it from time to time by the Ministry of

818
MAHABIR AUTO STORES v. OIL CORPN. 819

Petroleum whereunder it was no longer possible to give further supplies
'r to the appellant firm.
A

Aller considering the rival contentions advanced by the parties
the High Court, dismissed the writ petition. The appellant has filed this
appeal with special leave.

,., Allowing and disposing of the appeal with directions, th.is Court,
B

HELD: Every action of the State or of an instrumentality of the
State in exercise of its executive power, must be informed by reason. In
appropriate cases, actions uninformed by reason may be questioned as
arbitrary in proceedings under Article 226 or Article 32 of the
Constitution. [826D l c
The respondent-company Indian Oil Corporation is an organ of
-\ the 'State' or an 'instrumentality of the State' as contemplated under
Article 12 of the Constitution. [826F]
D
The State acts in its executive power·under Article 298 of the
Constitution in entering or not entering in contracts with individual
parties. Article 14 of the Constitution would be applicable to those
~ exercises of power. Therefore, the action of the State organ under Arti-
cle 14 can be checked. [826F)
E
Rule of reason and role against arbitrariness and discrimination,
rules of fair play and natural justice are part of the rule of law applic-
able in situation or action by State instrumentality in dealing with citi-
zens in a situation like as in the instant case. Even though the rights of
the citizens are in the nature of contractual rights, the manner, the
y method and motive of a decision of entering or not entering into a F
contract, are subject to judicial review on the touchstone of relevance,
and reasonableness, fair play natural justice, equality and non-dis-
crimination in the type of the transactions and nature of the dealing as
in the instant case. [827E-F)

The dichotomy between rights and remedies cannot be obliterated G

l by any straight jacket formule. It has to be examined in each particular
case. [829D)

Decision of the State/Public authority under Article 298 of the
Constitution, is an administrative decision and can be impeached on the
ground that the decision is arbitrary or violative of Article 14 of the H
820 SUPREME COURT REPORTS [1990] 1 S.C.R.

A Constitution or on any of the grounds available in public law field. It
appears to us that in respect of Corporation like Indian Oil Corporation
when without informing the parties concerned, as in the case of the
. -r
appellant firm on alleged change of policy and on that basis action to
seek to bring to an end the course of transaction over 18 years involving
large amounts of money is not fair action, especially in view of the
B monopolistic nature of the power of the respondent in this field. [829F-G]

E.P. Royappa v. State of Tamil Nadu and Anr., (1974] 4 SCC 3;
Maneka Gandhi v. Union of India and Anr., (1978] l SCC 248; Ajay
Nasia and Ors. v. Khalid Mujib Sehravardi and Ors., (1981] 1 SCC
722; A.D. Shetty v. International Airport Authority of India and Ors.,
[1979] 3 SCC 1 and Dwarkadas Mariatia and Ors. v. Board of Trustees
c of the Port of Bombay, [1989] 3 SCC 293, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1350
of 1990.

D From the Judgment and Order dated 9.2.1989 of Delhi High
Court in C. W. No. 1904 of 1983.

Dr. L. M. Singhvi, Dr. A.M. Singvi and D. Bhandari (N.P.) for
the Appellants. ~

E Harish N. ·Salve, Mrs. P. Shroff and S.A. Shroff for the
Respondent.

The Judgment of the Court was delivered by l
SABYASACHI MUKHARJI, CJ. Having heard counsel for the
F pa~ties and having considered the facts, circumstances and the conten- ·Y
tions involved herein, we grant special leave and dispose of the appeal
by judgment herein.

This appeal arises out of the judgment and order of the High
Court of Delhi dated 9th February, 1989. Appellant No. 1 is a partner-
G ship firm. The other four appellants are the partners of the said firm.
The respondent is a company incorporated under the Indian Com-
panies Act, 1956 and having, inter a/ia, one of its regional offices at
Janpath, New Delhi. The appellants sought in the Writ Petition filed
under Article 226 of the Constitution before the High Court a writ of
mandamus against the respondent directing it to desist from denying or
H
MAHABIR AUTO STORES v. OIL CORPN. [MUKHARJI, J.] 821

discontinuing the supply of all kinds of lubricants to the appellant No.
1 and from ousting, black-listing, coercing or pressurising the appel- A
lant No. 1 from the business of dealing with all kinds of lubricants
supplied by the respondent company to have and to continue to supply
all kinds of lubricants to the appellant firm as was done in the past and
for the maintenance of status quo existing on the 27th May, 1953 and
for payment of necessary damages for the period from 28th May, 1983 B
till the date of the filing of the writ petition before the High Court or
till the decision of the writ petition.

The appellant No. 1, herein referred to as the firm, is a partner-
ship firm duly registered with the Registrar of Firms, Delhi. The said
firm had been carrying on the distribution and sale of all kinds of
lubricants and was registered under Sales Tax Act vide Registration c
no. 1636 dated 22nd October, 1951 and has a goodwill of its own,
according to the said appellants, in the entire region of Northern India
with expertise and knowledge in the distribution and sale of all kinds
of lubricants. The appellants contend that in the past 32 years the
appellant firm had acquired a very good reputation and has earned D
enviable goodwill in the trade.

As stated hereinbefore, the respondent company is a statutory
body incorporated under the Indian Companies Act, 1956 and have
been dealing throughout with the appellant firm since 1965 when the
firm became, according to the appellants, its distributor. The appel- E
lants claim that the said firm had been appointed as Lube Distributor
and the appellant firm have been given the Permanent Customer Code
No. 63-{)1-3115-1022-9-X, according to the appellant. The appellants
contend that this was done in due course. It is the further case of the
appellants that the lubricants were released by the respondent com-
"-(·· pany to the said appellant firm on 25th January, 1965 by Invoice No. F
146668 and thereafter the firm had promoted the sales of the products
of the company successfully inasmuch as from February, 1965 to 27th
May, 1983 _and the firm had received and uplifted the supply of
lubricants/goods each year and the total quantity of lubricants/goods
such lifted had gone up to the extent of 1, 11,34,854 litres or kgs. The
appellants claimed that the said firm is one of the respondent com- G
pany's Lube Distributor in Northern India. It was the case of the
appellants before the High Court and also before this Court that the
said firm had been carrying on business as the Lube distributor of the
respondent company and had been selling all kinds of lubricants. The
appellants contend that the respondent company had recognised the
appellant firm during all this period as authorised dealer and a dis- H
tributor and an agent.
822 SUPREME COURT REPORTS (1990] 1 S.C.R.

It was the case of the appellants before the High Court and they
A had tried to demonstrate with reference to the various documents,
annexures etc. filed by them that the firm had been always carrying
business as Lube Distributor of the Company, and has been selling all
kinds of lubricants. The appellants further contended that the Com-
pany had recognised the firm during all this period as authorised
B dealer, distributor and agent. Certain letters were written by the com- /
pany directing various customers to contact the firm as an authorised l
Lube Distributor. This contention was stated before the High Court as
well as before us.Jt iS stated that annexures A-2 to A-14were copies of
letters written by the company directing various customers to contact
the firm as an authonsed Lube Distributor. Annexure A-15 is an
advertisement issued in a specially published souvenir on the occasion
c of All India Highway Motor Rally held in 1972 sponsored by the
Company in which the ·firm was referred to as the Company's
authorised Lube Distributor. Annexures A-lo to A-35 are copies of the
letters written by the Company to the appellants in relation to the
dealing of the appellants as Lube Distributor. There are several other
D documents on which reliance was placed on behalf of the appellants.
The firm was treated as authorised dealer and agent of the respondent-
conlpany. It was contended that there was a change of policy by the
respondent company, and certain documents of the year 1972 were
relied upon to indicate that the supply of lubricants was stopped to those
Associations and Dealers to whom ad hoc supplies were given, who
E were merely re-sellers, traders' and who did not have written contracts
with the Company. That was the case of the appellant's firm. How-
ever, the appellants asserted, that the supply was continued to the
appellant firm being a dealer and distributor of the Company .
. Reliance was placed on Annexures P-28 to P-34 which are the Product
Indent-cum-Delivery Orders for various periods issued by the.Com-
F pany to the firm. It is stated that in the said "Product Indent·cum-
Delivery Order there was a note iridicating "For Conditions of Supply
Please Turnover ..... ".However, in the copies filed with the rejoin-
der affidavit, there are no terms on the reverse side of the Product
Indent-cum-Delivery Order. Although the firm has been receiving
continuous supply of lubricants from the Company, it was suddenly
G stopped on 27th May, 1983 by the Company, and it was contended that
such an action of the Company will have the effect of black-listing the
firm and is arbitrary and against the principles of· natur"1 justice
besides being hit by the doctrine of promissory estoppel. The appellant
J
firm, it was contended, had made representations against the aforesaid
action of the respondent company but to no use. In that background
H the reliefs ment!oned here-in-before were sought from the High Court
MAHABIR AUTO STORES v. OIL CORPN. [MUKHARJI, J.] 823

in the application filed under article 226 of the Constitution. A
The respondent-company had raised various objections to the
maintainability of the Writ Petition, namely, inter alia, that the Com-
pany was not State within the meaning of Article 12 of the Constitu-
tion as the Company is registered under the Companies Act, 1956, the
Writ Petition was not maintainable as no writ to enforce alleged sup- B
ply, according to the respondent company, was maintainable and the
appropriate remedy for the appellants was to claim damages for breach
of contract or relief for specific performance of contract, if any. It was
submitted, further, that the firm had not any contract and was seeking
to rely on an irregular course of conduct and on an ad hoc arrangement
which the company cannot perpetuate in view of the prevailing
guidelines and/or directions received from the Ministry of Energy in c
the Department of Petroleum. Where in fact there was an actual writ-
ten agreement the Company's contractual relationship with its distri-
butors was also capable of termination forthwith and was only subject
to the normal contractual laws and decisions in the realm of contract
could not be the subject matter of proceedings under article 226 of the D
Constitution, it was submitted. The appellants case, it was urged by
the responde·11-company, was at much lower footing. The Company
however dnied that the firm had even been black-listed and it had
never acteu in a ma/a fide, or capricious or arbitrary manner or on any
extraneo.;s, or oblique or irrelevant consideration. There was no com-
mitment, it was suggested, to supply a fixed quantity regularly, made E
to the appellant firm at any stage.

It appears that the procedure adopted for the supply of lube oil
products was that the party requiring supply would write a letter to the
Company· whereupon the Divisional Office through the Lube section
would process the same and would intimate as to how much supply was F
possible. Thereupon the requisition slip would be processed and a
delivery challan/order would be made out. The conditions of the Pro-
luct Indent-cum-Delivery Order, inter alia, categorically provided
that "IOC also reserves the right to cancel your order without any
intimation or assigning any reason". It further provided that "IOC
look no responsibility of despatches/releases of stocks shall be on the G
basis of availability of stocks." There was no other contract in the facts
and circumstances of the case, it was urged. The letters making the
requi~itions, the Product Indent-cum-Delivery Orders, the Delivery
Challans as also the payment are the only documents constituting the
dealing or transactions between the parties. The Company had
categorically reserved its right to refuse and/or cancel the orders with- H

•
824 SUPREME COURT REPORTS [1990] I S.C.R.

A out any intimation or assigning any reason and it was perfectly within
its right to discontinue the said arrangement. Several obligations have
been provided under the arrangement including, inter alia, price con-
trols, minimum off-take of stocks, safeguards against contamination,
right to the inspection and/or unrestricted access, right of account etc.
It was asserted that even under the contractual transaction as entered
B into with the Associated Trading Company, the respondent company
had right of termination forthwith for any reason whatsoever and the
Company's right to terminate was not fettered by the doctrine of
reasonableness or doctrine of natural .iustice and rights of hearing etc.
as sought to be put forward on behalf of the appellants. It is, therefore,
suggested that what was not even contractually recognised should not
be artifically given higher status, in the facts and circumstances of the
c case, as the appellants were seeking to invoke the right flowing from
an utter irregularity specially when the company had been made publi-
cally accountable especially when the Company does not act unless
through a written contract as also when only authorised.

D It was further the case of the respondent that the company was
subjected to distribution policies and guidelines of the Department of
Petroleum in the Ministry of Energy, Government of India. They are
also bound by the directives to the effect that lubricants are to be sold
only to consumers, to those parties who will not sell directly or indi-
rectly to foreign oil companies and no sale should take place to old
E agents or distributor of foreign oil companies. All sales of lubricants
must take place to actual consumers or to such small parties who will
sell actually to consumers and not to foreign oil company. Besides this,
the Ministry of Energy by the letter bearing reference No. P-1701117/82-
S UP dated 21st December, 1982 under policy number 201 had com-
municated to all oil companies that no new distributor was to be
F appointed for distribution of lubricating oils and there is a ban on such
appointments. In the facts and the circumstances of the case the Com-
pany was, thus, according to the respondent, prevented by the
directive/instruction/guidelines of the Ministry of Energy to appoint
new dealers and distributors or to formalise any agreement constitut-
ing the dealership or distributorship. In fact, right since 1972, 24
G parties who had ad hoc arrangement of supply of lube oils were discon-
tinued, according to the respondent. There was no assurance, what-
soever, nor any promise nor any contract or nor any prescribed
schedule to supply any quantity of lubricants, as alleged, to the appel-
lant or to anybody else. It was further asserted in the present case that
in view of the ban imposed, no fresh distributors could be appointed
H nor the oil companies empowered to regularise and contract afresh for
MAHABIR AUTO STORES v. OIL CORPN. [MUKHARJI, J.] 825

' 'y dealers/distributors in lubricant oils. It was further the case of the
A
respondent that the customer code number is given to authorised dis-
tributors/dealers only. The position was explained that the mode and
manner of computerisation of accounts set out in Annexure P-25 and
the allotment of customer code number is only for the purpose of
identification and not for any other purpose nor to designate the firm
as an authorised Lube distributor. The Company had denied that the B
M Code 01 was allotted only to dealers/agents as alleged. The Code 01
was applicable to all re-sellers, where a further sale is a necessary
concommitment of the first sale. Certain particulars were given how 01
is given and it was stated in the case of four parties the partnership was
....,.. terminated because of the new policy .

The High Court after exhaustively dealing with the rival conten- c
lions came to the conclusion that viewed from diverse angles, the
--< appellants had sought the specific performance of certain alleged
' contract. It was also held that the said alleged contract was neither
precise, nor definite nor certain nor was capable of being made cer-
tain. It was not certain, in this case, as to how much goods were D
required and for how long were these required and at what considera-
tion, these were all uncertain and vague, it was submitted. It was held
___/' by the High Court that for a Writ of mandamus the appellants should
have a legal right to enforce the performance of alleged duty by the
respondent and since no right was shown to exist by the appellants for
selling the continuous supply of the lubricants whatsoever indefinitely E

c.
for future and no corresponding legal duty was imposed on the respon-
dent to supply, the Writ of mandamus was not maintainable. In those
circumstances the Writ Application was dismissed as not maintainable.

y Aggrieved thereby the appellants have come up to this Court, as
mentioned hereinbefore. F

We have heard learned counsel Dr. L.M. Singhvi as well as Mr.
Salve exhaustively. Further affidavits were filed and documents pro-
duced before us. It was sought to be urged by Dr. Singhvi that the
respondent was an instrumentality of State and as such the question

~
involved was whether an instrumentality of State can suddenly, G
arbitrarily, unreasonably, without any relevant factors and without
any notice and determination or proceeding stop supplies of products
which, according to him, had been supplied more than· I crore 11 lacs
litres/kg of product continuously and uninterruptedly over a period of
more than 18 years. Dr. Singhvi suggested that the respondent IOC is
an instrumentality of State under Article 12 of the Constitution. From H
826 SUPREME COURT REPORTS [1990] 1 S.C.R.

A the nature of the business carried on by the appellants, it was manifest
to us that the supply of the lubricants of the type with which the
respondent had a monopoly, could be carried on by the appellants only
as the supplier from the respondent.That business was not possible
otherwise. The respondent had monopoly in that respec/. This aspect
is important. The respondent firm was supplying from 1965 to 1983
B large quantities of lubricant oil and from 1983 onwards till 1989
supplies were continued on the interim order of the High Court of
Delhi. Supplies were stopped suddenly on 27th May, 1983. There is
no dispute that no intimation was given, no notice was given, no query
or clarification sought for and there was no adjudication as such. It was
held that the appellant firm was not entitled to supply, the stoppage of
C supply in May 1983 was, therefore, bad. The appellant further con-
tended that the case of the respondent-company roe was never made
known or revealed prior to the Counter Affidavit in the High Court of
the appellants. The contention urged on behalf of the appellants was
that this is patent violation of all canons of natural justice, fair play and
reasonableness. It is submitted that natural justice and reasonableness
D of the procedure are enshrined under Article 14 of the Constitution.

It is well settled that every action of the State or an instru-
mentality of the State in exercise of its executive power, must be
informed by reason. In appropriate cases, actions uninformed by
reason may be questioned as arbitrary in proceedings under Article
E 226 or Article 32 ot the Constitution. Reliance in this connection may
be placed on the observations of this Court in Mis Radha Krishna
Agarwal & Ors. v. State of Bihar & Ors., [1977] 3 SCC 457. It appears
to us, at the outset, that in the facts and circumstances of the case, the
respondent-company IOC is an organ of the State or an instrumenta-
lity of the State as contemplated under Article 12 of the Constitution.
F The State acts in its executive power under Article 298 of the Constitu-
tion in entering or not entering in contracts with individual parties.
Article 14 of the Constitution would be applicable to those exercises of
power. Therefore, the action of State organ under Article 14 can be
checked. See Mis Radha Krishna Agarwal v. State of Bihar, (supra) at
p. 462, but Article 14 of the Constitution cannot and has not been
G construed as a charter for judicial review of State action after the
contract has been entered into, to call upon the State to account for its
actions in its manifold activities by stating reasons for such actions. 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 circumstances subject to Article 14 of the Constitution in enter-
H ing or not entering into contracts and must be reasonable and taken
MAHABIR AlITO STORES v. OIL CORPN. [MUKHARJi, J.J 827

only upon lawful and relevant consideration, it depends upon facts and
A
~·· circumstances of a particular transaction whether hearing is necessary
and reasons' have to t>e stated. In case any right conferred on the
citizens which is sought to be interfered, such action is subject to
Article 14 ofthe Constitution, and must be reasonable and can be
taken only upon lawful and relevant grounds of public interest. Where
there is arbitrariness in State action of this type of entering or not B
entering into contracts, Article 14 springs up and judicial review
.46· strikes such an action down. Every action of the State executive
authority must 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 Arti-
cle 14 of the Constitution. If a Governmental action even in the mat-
ters of entering or not entering into contracts, fails to satisfy t\le test of c
reasonableness, the same would be unreasonable. In this connection
reference may be made to E.P. Royappa v. State of Tamil Nadu &
Anr., (1974] 4 SCC 3; Maneka Gandhi v. Union of India & Anr.,
(1976] 1 SCC 248; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi &
Ors., (1981] l SCC 722; R.D. Shetty v. International Airport Authority D
of India & Ors., (1979] 3 SCC 1 and also Dwarkadas Marfatia and sons
v. Board of Trustees of the Port of Bombay, [1989] 3 SCC 293. 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 State instrumentality in
dealing with citizens in a situation like the present one. Even though E
the rights of the citizens are in the nature of contractual rights, the
manner, the method and motive of a decision of entering or. not enter-
ing 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. F

The existence of the power of judicial review however depends
upon the nature and right involved in the facts and circumstances of
the particular case. It is well settled that there can be "malice in law".
Existence of such "malice in law" is part of the critical apparatus of a
particular action in administrative law. Indeed "malice in law" is part G
of the dimension of the rule of relevance and reason as well as the rule
of fair play in action.

It was submitted that the respondent had continuously, un-
interruptedly' consistently and reeeatedly dealt wjth the apeellant and
recognised the appellant, and had treated it as a dealer. On that H
828 SUPREME COURT REPORTS [1990] 1 S.C.R.

A basis the appellants and his family had acted for 19 years. To sub-
stantiate these assertions, certain documents and samples were refer-
red to by the appellants. Our attention was drawn to large number of
invoices, cash memos and to the customer code No. 013115 allotted to
the appellant. It was submitted that the prefix 01 applied only to
dealers, distributors etc. The defence of the respondent was the
B absence of written contract which was the standard form and not
appointment letters. The appellant contended that the appellants were
selling IOC products without written contract. It was further asserted
that the IOC has sought to change its stand and say that it does not
deal with person without contract but according to the appellants, has
issued letters of appointment to some of them and these persons,
C according to the appellants, sell lubes. It was submitted that this
change of stand was an afterthought. It was further stated that letters,
in some cases, cannot lead to an exclusion of all others to whom letters
of appointment had not been issued. It is submitted that in the fairness
IOC could have and should have issued such letter of appointment to
appellant No. 1 also and should have considered the case of the
D appellant-firm. It was submitted that IOC has always treated lube and
non lube products on the same basis, without distinction. This distinc-
tion which was sought to be urged before us, it was submitted, was an
after thought and not justified. The appellant contended that the
IOC's purported reliance upon the guidelines, was not justified. Fur-
thermore, the guidelines were not mandatory or binding. These use
E directory words like "may". More importantly, these exclude all those
who are part of the existfog network and apply for fresh appointment
of new distributors. The appellant was part of the existing network and
was not to be inducted as a new distributor and the appellant-firm
falls within the existing network and has always been so treated con-
tinuously and uninterruptedly from 1965 to 1983, it was the case of the
F appellants. It was contended that the appellant-firm was entitled to ··-y
relief, inter alia, on grounds of promissory estoppels, unreasonable
and arbitrary exclusion, and discriminatory treatment under Article 14
of the Constitution.

Mr. Salve on behalf of the appellants sought to urge that the
G appellant firm had never been appointed as a Lube Distributor. There
is no letter of intent, letter of appointment, much less letter at all.
Ad-hoc supplies of Lube products alone had been made to the appel-
. !ant from 1965 onwards. The procedure adopted for the supply of lube
products was that the appellant would write a letter to the company
whereupon the Divisional Office, Lube Section would process the
· II same. The policy decision in December, 1982 indicated that no new
MAHABIR AUTO STORES v. OIL CORPN. [MUKHARJI, J.] 829

Distributor for Lube products would be appointed and no new pro-
A
·~· ducts would be distributed either through the existing net-work, of
existing Lube Distributors or to authorised dealers of other products
such as, petrol, SKO, LOO and HSD. It was submitted that as a result
of the policy it was not the appellant alone to whom the supplies were
discontinued. There was similar discontinuance of supplies to 24 other
parties whose names were given in the counter affidavit. B

Mr. Salve submitted that in private law field there was no scope
for applying the doctrine of arbitrariness or ma/a /ides. The validity of
the action of the parties have to be tested, it was urged on behalf of the
respondent, on the basis of "right" and not "power". A plea of
arbitrariness/ma/a /ides as being so gross cannot shift a matter falling
in private law field to public law field. According to Mr. Salve to c
permit the same would result in anomalous situation that whenever
State is involved it would always be public law field, this would mean
all redress against the State would fall in the Writ Jurisdiction and not
in suits before Civil Courts.
D
We are of the opinion that in all such cases whether public law or
private law rights are involved, depends upon the facts and circums-
tances of the case. The dichotomy between rights and remedies cannot
be obliterated by any straight jacket formula. It has to be examined in
each particular case. Mr. Salve sought to urge that there are certain
cases under Article 14 of arbitrary exercise of such "power" and not E
cases of exercise of a "right" arising either under a contract or under a
Statute. We are of the opinion that that would depend upon the factual
matnx.

Having considered the facts and circumstances of the case and
the nature of the contentions and the dealings between the parties and F
in view of the present state of law, we are of the opinion that decision
of the State/public authority under Article 298 of the Constitut_ion, is
an administrative decision and can be impeached on the ground that the
decision is arbitrary or violative of Article 14 of the Constitution of
India on any of the grounds available in public law field. It appears to
us that in respect of Corporationiike IOC when without informing the G
parties concerned, as in the case of the appellant firm herein on
alleged change of policy and on that basis action to seek t-0 bring to an
end the course of transaction over 18 years involving large amounts of
money is not fair action, especially in view of the monopolistic nature
of the power of the respondent in this field. Therefore, it is necessary
to reiterate that even in the field of public law' the relevant persons H
830 SUPREME COURT REPORTS [1990] 1 S.C.R.

concerned or to be affected, should be taken into confidence. Whether
A
and in what circumstances that confidence should be taken into consi-
deration cannot be laid down on any straight jacket basis. It depends
on the nature of the right involved and nature of the power sought to
be exercised in a particular situation. It is true that there is discrimina-
tion between power and right but whether the State or the instrumen-
B tality of a State has the right to function in public field or private field
is a matter which, in our opinion, dep~nds upon the facts and circums-
tances of the situation, but such exercise of power cannot be dealt with
by the State or the instrumentality of the State without informing and
taking into confidence, the party whose rights and powers affected or
sought to be affected, into confidence. In such ·situations most often
people feel aggrieved by exclusion of knowledge if not being taken
c into confidence.

Such transaction should continue as an administrative decision
with the organ of the State. It may be contractual or statutory but in a
situation of transaction between the parties for nearly .two decades,
D such procedure should be followed which will be reasonable, fair and
just, that is, the process which normally be accepted to be followed by
an organ of the State and that process must be conscious and all those
affected should be taken into confidence.

Having regard to the nature of the transaction, we are of the
E opinion that it would be appropriate to state that in cases where the
· instrumentality of the state enters the contractual field, it should be
governed by the incidence of the contract. It is true that it may not be
necessary to give reasons but, in our opinion, in the field of this nature
fairness must be there to the parties concerned, and having regard to )
the large number or the long period and the nature of the dealings
F between the parties, the appellant should have been taken into confi- '(
dence. Equality and fairness at least demands this much from an
instrumentality of the State dealing with a right of the State not to treat
the contract as subsisting. We must, howe.ver, evolve such process
which will work.

G Therefore, we dired that the case of the respondent be put to the ~
appellants, .and let the respondent authorities consider afresh the
submissiOns iaade by the appellant firm, namely, that the existing
ar~angemeot amounts to a contract by which the distributorship was
continued in case of the appellant firm without any formal contract
and further that the new policy of the Government introduced in
H December, 1982 would not cover the appellant firni and as such the
MAHABIR AUTO STORES v. OIL CORPN. [MUKHARJI, J.] 831

appellant should continue. It will be sufficient, having regard to the A
nature of the claims, for the respondent authority to consider this
aspect after taking the appellant firm into confidence on this aspect.
Nothing further need be stated or _required to be done and we give no
·directions as to whether reasons should be recorded or hereinafter
should be given. In the facts and circumstances, it is not necessary to
B
give oral hearing or record the reasons as such for the decision. The
decision should be based on fair play, equity and consideration by an
institution like roe. It must act fairly.

We direct accordingly that the present arrangement to continue
until. the respondent company gives the consideration on the lines
indicated above and makes the decision. C

It is not our decision which· is important but a decision on the
above basis should be arrived at. which should be fair, just and
reasonable-and consistent with good government-which will be
arrived at fairly and should be taken after taking the persons con-
cerned whose rights/obligations are affected, into confidence. Fairness D
in such action should be perceptible, if not transparent.

/ The Judgment and the Order of the High Court are, therefore,
..A set aside and the direction and order as aforesaid are substituted and
the application made to the High Court is disposed of on the aforesaid
terms. In the facts and circumstances of the case, there will be no order E
as to costs.

Y.Lal Appeal allowed .

.CV.
I