ORDER
1. In this writ petition the petitioner has prayed for a declaration that Cl.27(n) of the agreement regarding the distributorship of Liquified Petroleum Gas entered into between him and the respondent
Indian Oil Corporation, as void as offending Art. 14 of the Constitution of India and for the, issue of consequential orders quashing the order by which the said distributorship agreement between the petitioner and the respondent-Corporation was terminated.
2. The facts of the case, in brief, are as follows: The petitioner was appointed as a Distributor of Liquified Petroleum Gas (LPG for short) for Hebbal and Yelahanka area in the City of Bangalore, on -40-2-1984. An agreement was executed between the petitioner and the respondent-Indian Oil Corporation ('the Corporation' for short) on 5-3-1984 in which the terms and conditions under which the petitioner was appointed as a Distributor for the LPG were set out. On 29-7-1987 the officers of the Corporation carried out a surprise inspection of the premises of the petitioner in which he was carrying on his business. Thereafter, by communication dt. 11-8-1987 the distributorship agreement between the petitioner and the respondent was terminated under CL 27(n) of the agreement. Thereafter, the petitioner has presented this writ petition.
3. Sri R. N. Narasimha Murthy, the learned counsel for the petitioner, in support,of the prayer made in the writ petition submitted as follows : The respondent Corporation was a company sponsored by the Government of India. Therefore, it is 'State'as defined in Art. 12 of the Constitution With the object of ensuring guaranteed
distribution and utilisation of petroleum products, which was being distributed and marketed in India by a foreign company called 'Esso Eastern Inc', the Esso (Acquisition of Undertakings in India) Act, 1974, was enacted by the Parliament. Section 7 of the said Act provided that after the transfer and vesting of the undertaking, which was acquired under the Act, in the Central Government, the Central Government was empowered to transfer the right, title and interest and the liabilities of the company in a Government company. Similar provision was made in the Burmah Shell (Acquisition in India) Act, 1976 and The Caltex (Acquisition in India) Act 1977.4t is pursuant to the notifications issued under S. 7 of the respective enactments the right, title, interest and liabilities of the erstwhile company, which stood vested in the Central Government, were transferred to the Corporation. See Som Prakash v. Union of India, AIR 1981 SC 212. It is pursuant to such transfer under S. 7 of the respective enactments , the respondent Corporation is carrying on its activity of distribution of petroleum products in India Consequently, the Corporation has to conform to the fundamental rights incorporated in Part III of the Constitution.Therefore, both at the time of selecting and appointing distributors for the supply of LPG as also at (he time of termination of distributorship, the Corporation has to act in a manner not violative of Art. 14 of the Constitution. Clause 27(n) of the agreement confers arbitrary power on the Corporation to terminate the distributorship agreement without assigning any reason and therefore the said clause is patently arbitrary and violative of Art. 14 of the Constitution. Consequently, the said clause, as well as the impugned order by which the distributorship agreement was terminated, are liable to be declared invalid and a direction has to issue to the Corporation to continue the distributorship until it is terminated in accordance with law.
4. As against the above submission, Sri P. V. Shetty, the learned counsel for the Corporation, urged the following points:
(i) There isa clause in the agreement which provides for arbitration in the event of there being any dispute between a distributor and the Corporation. In view of the said clause,even a suit cannot be filed as it is barred by S. 32 of the Arbitration Act. Therefore, the writ petition cannot be entertained.
(ii) The petitioner in this writ petition is trying to enforce a contractual obligation. A petition under Art. 226 of the Constitution cannot be entertained in which the cause o f action is based purely on breach of contract. The petitioner cannot question the constitutional validity of a clause in the agreement.
(iii) In any event Cl. 27(n) of the agreement is not violative of Art. 14 of the Constitution as the termination of distributorship agreement can be effected only under the circumstances specified in the clause and not arbitrarily.
5. From' the rival contentions urged I by the learned counsel, the following three questions arise for consideration
(i) Whether a writ petition should be entertained when there is a clause in (he agreement providing for arbitration for the settlement of disputes between the parties?
(ii) Whether it is open for the petitioner who is one of the parties to the contract to question the constitutional validity of a clause in the agreement?
(iii) I f the answer to the second question is in the affirmative, whether Cl. 27(n) of the agreement is violative of Art. 14 of the Constitution of India?
6. As far as the first question is concerned the learned counsel for the respondent relied on the judgment of the Supreme Court in the case of Rukmani Bai v. Collector, Jabalpur. : AIR1981SC479 . In the said case the question arose in the context of an arbitration clause incorporated in a mining lease entered into between the appellant therein and the State of Madhya Pradesh through the Collector, Jabalpur. In the said case, the appellant therein challenged an arbitration award made pursuant to an arbitration clause in the mining lease. The Supreme Court held that when a contract contains an arbitration clause the settlement of disputes must take place only in accordance with the provisions of the Arbitration Act. The relevant portion of the judgment reads:
'Thus, Arbitration Act. 1940 is a self contained exhaustive Code, Relief sought by the appellant by invoking extraordinary jurisdiction of the High Court under Art. 226 could have been obtained by proceeding in accordance with the relevant provisions of the Arbitration Act. In this situation, if the High Court declined to entertain the writ petition, no exception can be taken to it. Further, the indenture of lease constitutes a contract between the parties. Right to excavate limestone from leased area and obligation to pay royalty under the relevant Minor Mineral Rules arise from the contract. The contract provided for resolution of dispute arising out of the carrying out of contract. The writ jurisdiction of the High Court under Art. 226 of the Constitution is not intended to facilitate avoidance of obligation voluntarily incurred (See Har Shankarv. Dy.Excise and Taxation Commr. : [1975]3SCR254 ).'
(Underlining by me) (Underlining not found in the copy- Ed.)
In the present case, there is an arbitration clause which is Cl. 37 of (he agreement. The relevant portion of the same reads:
37(a) Any dispute or difference of any nature whatsoever any claim, cross-claim, counter-claim or set off of the Corporation against the Distributor or regarding any right, liability, act, omission of account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the Sole Arbitration of the Director (Marketing) of the Corporation or of some officer of the Corporation who may be nominated by the Director (Marketing).'
In view of the ratio of the judgment of the Supreme Court in- the case of Rukmanibai the contention of the respondent that the writ petition cannot be entertained has to be upheld.
7. The learned counsel for the petitioner however, submitted that the Arbitrator provided for was an officer of the Corporation itself and further the terms and conditions set out in Cls. (a) to (h) were such as would show that the petitioner was precluded from raising any question of bias against the Arbitrator and the decision of the Arbitrator was made final and conclusive, and therefore, the arbitration clause should not be held as a bar for entertaining the writ petition. I am not convinced by the submission. The petitioner .has by his own volition entered into the contract which contains the arbitration clause The Arbitrator is one of the top officers of the Corproration,' that is, the Director (Marketing). He is in duty bound to decide any dispute raised in an impartial manner Further, as provided in S. 31 of the Act, it is also open for the petitioner to raise questions about the fairness of the arbitration agreement itself before the Court if and when the award of the arbitrator were to be against him. Further, clause 36 of the agreement shows that the agreement was made at Madras and the petitioner had agreed that Courts at Madras alone have jurisdiction. Section 32 of the Arbitration Act bars suits on any rounds whatsoever including the effect or validity of an arbitration agreement. As held by the Supreme Court in the case of Rukmani Bai : AIR1981SC479 , whenever there is an arbitration clause in a contract, the party aggrieved must have recourse to the pr(3 )Visions of the Arbitration Act an.d that being a complete code in itself, the party cannot approach ths Court in a petition under Art. 226 of the Constitution by passing the arbitration clause and the provisions of the Arbitration Act. For these reasons, I hold that in view of the arbitration clause, the writ petition cannot be entertained .
8. Though the writ petition can be disposed of on the above ground itself, as full arguments have been advanced by the learned counsel on the other two questions and in view of-the importance of the questions, I proceed to consider them.
9. As regards the second question, the learned counsel for the respondent submitted that when there was a valid contract between the parties, the relationship was governed by the terms of the contract and not by the provisions of the Constitution. In support of this submission, he relied on the judgment of the Supreme Court in the case of Radhakrishna Agarwal v. State of Bihar, AIR 1977 SC 1496. 'That case arose out of the termination of contract between the appellant therein and the State of Bihar in the forest department. The contract was for gathering Sal seeds. The allegation made by the appellant therein was that the Conservator of Forests enhanced the royalty unreasonably and thereafter cancelled the lease. There was a clause in the agreement entered into between the parties that the rate of royalty could be revised in every three years in consultation with the lessee and the decision would be binding on the lessee. In the said case, the Supreme Court held that at the time of entering into contract with individuals, the State is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers. However, regarding the entering into contract between an individual and the State, the Supreme Court said thus
'But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No, question arises of violation of Art. 14 or any other constitutional provision when the State or its agents. purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which it is apart from contract.'
(Underlining by me)
In the same case, the Supreme Court also repelled the contention that before terminating the contract, the principles of natural justice should be complied with. Relevant portion is at para. 23. It reads:
'23. A rather desparate argument which has been addressed to us on behalf of the appellants is that they were entitled to an opportunity to show cause against the cancellation of the leases. It was urged on the strength of A. K. Kraipak v. Union of India, : [1970]1SCR457 that the distinction made between administrative and quasi-judicial action is thin and a vanishing one. This argument appears to us to be wholly irrelevant inasmuch as a question of the distinction between an administrative and quasi-judicial decision can only arise in the exercise of powers under statutory provisions. Rules of natural justice are attached to the performance of certain functions, regulated by statutes or rules made there under involving decisions affecting rights of parties. When a contract is sought to be terminated by officers of the State, purporting to act under the terms of an agreement between parties, such action is not taken in purported exercise of a statutory power at all.'
The ratio of this judgment was followed by a Division Bench of this Court in the case of Mahadeswara Stores v. State of Karnataka, (1983) 2 Kant U 201 in which this Court held that, for the suspension of the agency to run fair price shops in terms of a clause in the agreement, principles of natural justice had no application. He also relied on the judgment of the Supreme Court in the case of Premji Bhai v. Delhi Development Authority, : [1980]2SCR704 in which the Supreme Court reiterated the views expressed in Radhakrishna Agarwal's case. The learned counsel-for the respondent also relied on the judgment of the Supreme Court in the case of Har Shankar V. Deputy Excise and Taxation Commr. : [1975]3SCR254 in which the Supreme Court held that the writ petition is not a remedy which could be resorted to for avoiding a contractual liability. The relevant portion of the judgment on which he relied reads:
'Analyzing the situation here a concluded contract must be held to have come into existence between the parties. The appellants have displayed ingenuity in their search for invalidating circumstances but a writ petition is not an appropriate remedy for impeaching contractual obligations.
xxx xxx xxx
The writ jurisdiction of High Courts under Art. 226 of the Constitution is not intended to facilitate avoidance of obligations voluntarily incurred. That, however, will not estop the appellants from contending that the amended Rules are not applicable as their licences were renewed before the amendments were made.'
Relying on these authorities, the learned counsel for the respondent submitted that the petitioner cannot rely on Art. 14 of the Constitution to challenge the validity of a clause in the contract and thereby get rid of his contractual liability.
10. Learned counsel for the petitioner, however, submitted that in view of the pronouncement of the Supreme Court in Ramana Dayaram Shetty v. International Airport Authority of India, : (1979)IILLJ217SC and the recent decision in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath, : (1986)IILLJ171SC , it can no longer be contended that the constitutional validity of a clause in a contract cannot be challenged by a party to the contract in a writ petition. In the case of R. D. Shetty, the learned counsel pointed out, that the Supreme Court had held that the Government could neither confer a largess or take away largess arbitrarily and if it does so, it would be a clear case of violation of Art. 14 of the Constitution. Relying on the above observation, the learned counsel submitted that just as at The time of conferring a largess the State cannot pick and choose any individual of its choice, it cannot also take away the largess once conferred on an individual arbitrarily. From this, he said, it follows that if there is any clause incorporated even in an agreement which a citizen has no other alternative than to sign, as he could refuse to do so only at the risk of not securing the, largess (the distributorship in the present case), the party would be entitled to challenge the constitutional validity of the clause Notwithstanding the fact that it had become a term of contract. The learned counsel pointed out that this aspect has been dealt with elaborately by the Supreme Court in the case of Brojo Nath and a clause in the service contract which provided for termination of service of the employees of the Corporation without assigning any reason by merely giving three months's notice was declared as violative of Art. 14 of the Constitution. In particular he relied on paras. 76 and 77 of the judgment, in which the Supreme Court had considered the provisions of Ss. 16, 19 and 23 of the Contract Act and pointed out that an unconscionable bargain would be one which is irreconcilable, with what is right or reasonable. He also relied on para. 90 of the judgment. Relevant portion of the same reads:
'90. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn idoilogies? 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 nineteenth century theories? 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 under foot the rights of the weak? 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 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 great equality clause in Art. 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 who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in t he 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 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 the stronger party or go without them. It will also apply where a man has no choice, 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 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.'
11. The contention advanced by the learned counsel for the petitioner, though, on the face of it appears to be very attractive, on a closer scrutiny , it is devoid of merit. The said judgment concerned the condition of service incorporated in a contract between Central Inland Water Transport Corporation, which is an instrumentality of, the State and an individual employee. The position of persons appointed as officers and servants of the Government or an instrumentality of the State stand entirely on a different footing. Though the relationship initially arises out of contract, namely, the acceptance of the offer by the individual, to become an officer or an employee of the State or the instrumentality of the State, his condition of service thereafter is regulated by public law which includes Articles. 14 and 16 of the Constitution and not by mere contract. See Roshanlal Tandon v. Union of India : (1968)ILLJ576SC and Union of India, v. Arun Kumar Roy, : (1986)ILLJ290SC . Further, it is a matter of public policy that in order to safeguard the public interest that an individual officer or servant of the Government or an instrumentality of the State, should enjoy security of tenure in order to ensure that while exercising the powers as an officer or servant of the Government or its instrumentality, he acts without fear or favour. Therefore, in the nature of things, the Government or an instrumentality of the State cannot incorporate a clause in a service contract to the effect that the service of a permanent officer or servant of the State or instrumentality of the State could be terminated at any time and without assigning any reason. Such a clause would be void on the ground of it being opposed to public policy in view of S. 23 of the Contract Act. See Motiram Deka v. N. E. Frontier Railway, : (1964)IILLJ467SC in particular paras. 28 and 31 of the judgment. This aspect has been elaborately dealt with by this Court in the case of T. G. Srinivasamurthy v. Bharat Earth Movers, (1982) 1 Lab LJ.268 in which the relevant service rule incorporated in the Service Rules of some of the Government Companies and the Reserve Bank of India which Authorised the termination of service of permanent employees by giving a prescribed period of notice and without assigning any reason, were declared as offending Arts. 14 and 16 of the Constitution. The above view taken by this Court-stands confirmed by the judgment of the Supreme Court in the case of Brojo Nath, : (1986)IILLJ171SC . But there is no comparison between the conditions of service incorporated in a service rule which is made part of the contract of service and an agreement entered into by an individual businessman with the Government or the instrumentality of the Government in connection with the business transaction. In fact that distinction has been highlighted by the Supreme Court in the case of Brojo Nath itself. The relevant portion is contained in the very paragraph 90, on which the learned counsel for the petitioner relied. Itreads:
'This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This 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 infra-structural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which, result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither he enumerated nor fully illustrated. The court must judge each case on its own facts and circumstance'.
At para. 107 of the same judgment. the Supreme Court referred to the ratio of the decision in Radhakrishna agarwars case AIR 1977 SC 1496 and pointed out at para. 108 that the said decision had no relevance to the contract of employment containing a clause which conferred an arbitrary power to terminate the service of an employee.
12. Learned counsel for the petitioner submitted that a writ petition complaining about breach of contract was maintainable against the State or any of its instrumentality if the power to enter into contract was governed by statutory provisions. In support of this contention, he relied on,the judgment of the Supreme Court in the case of The D.F.O., South Kheri v. Ram Sanehi Singh, : AIR1973SC205 . The contention would have been unexceptionable if the contract in question was entered into by the Corporation in exercise of any statutory power vested in it. There is no statutory provision regulating the distributorship of LPG. The contention of the petitioner that S. 7 of the enactment pursuant to which the right, title and interest of the erstwhile foreign company engaged in the business of distribution of petroleum products which was acquired by the Central Government, was transferred to the respondent-Corporation, was itself the statutory provision regulating the distribution of LPG, is not correct. The consequence of such transfer under S. 7 of that Act was that the respondent-Corporation got into the shoes of the executive power of the Central Government, as pointed out by the Supreme Court in the case of Somprakash AIR 1981 SC 212. Therefore the contract entered into by the Corporation is equal to a contract entered into by the Government in exercise of its executive power under Art. 299 Therefore, the ratio of the decision of Ram Sanehi's case is not apposite to this case.
13. The decision of the Supreme Court in the case of Gujarath State Financial Corpn. v. M/s. Lotus Hotels Pvt. Ltd. AIR 1983 SC 8M on which the learned counsel for the petitioner relied, also does not advance the case of the petitioner. In that case it was held that on the application of principle of promissory estoppel a State owned Corporation could be compelled to keep its promise of advancing of loan to a person, who, acting on the basis of the promise, had spent considerable time and money, for the reason that unless an instrumentality of the State was compelled to do so it was likely to result in manifest injustice to the person in whose favour it had agreed to advance a. loan. In the present case, the petitioner was aware that his distributorship was liable to be cancelled under any one of the sub-clauses of Cl. 27 of the agreement. There was no promise by the respondent-Corporation to continue it as long as the petitioner wanted it to continue. For these reasons, it appears tome that it is not open for the petitioner to challenge the constitutional validity of a clause in the agreement.
14. Even on the basis that the constitutional validity of a clause in the agreement can be challenged, the third and the last point for consideration is, whether Cl. 27(n) of the agreement conferred any arbitrary power? In order to appreciate the contention, it is necessary to set out Cl. 27. It reads:
'27. Notwithstanding ' tiding anything to the contrary herein contained, the Corporation shall also be at liberty at its entire discretion to terminate this agreement forthwith upon Or at any time after the happening of any of the following events, namely
(a) If the Distributor shall commit a delay, breach or default of any of the terms, conditions, covenants and stipulations contained in the agreement and fail to remedy such breach within four days of the receipt of a written notice front the Corporation in that regard;
(b) Upon :-
(i) the death or adjudication as insolvent of the Distributor, if he be an individual;
(ii) the dissolution of the partnership or the distributor's firm or the death or adjudication as insolvent of any partner of the firm, if the Distributor be a firm.
(iii) the liquidation, whether voluntary or otherwise or the passing of an effective resolution for winding up, if the Distributor be a company or o-operative Society;
(c) If any attachment is levied and continued to be levied for a period of seven days upon the effects of the Distributor or any individual partner for the time being of the Distributors firm or any elected member of the Distributors co-operative -society;
(d) If the Distributor or any partner in the Distributor's firm or any whole time office bearer of the co-operative society appointed as Distributor here under shall be involved in any criminal offence relating to moral turpitude.
(e) If a Receiver shall be appointed of any property or assets of the Distributor or of any partner in the Distributors firm or of the Distributor co-operative Society.
(f) If the licence issued to the Distributor by the relevant authorities for the storage of LPG products supplied by the Corporation is cancelled or revoked;
(g) If the Distributor shall for any reason make default in payment to the Corporation in full or his outstandings as appearing in the Corporation's books of account beyond 4 days of demand by the Corporation.
(h) If the Distributor does not adhere to the instructions issued front time to time by the Corporation in connection with safe practices to be followed by him in the supply and storage of the Corporations products or otherwise;
(i) if the Distributor shall give out unauthorised connections to any person without the Corporations receipt/ subscription voucher or otherwise howsoever;
(j) If the Distributor shall deliberately contaminate or tamper with the quality of any of the Corporation's products;
(k) If the Distributor shall sell ' the Corporation's profits at prices higher than those fixed by the Corporation;
(1) If any information given by the Distributor in his application for appointment as a Distributor shall be found to be untrue or incorrect in any material particular;
(m) If the lease tenancy of the Distributor (if the Distributor holds the site as lessee or tenant) shall be terminated or purported to, be terminated or comes to an end for any reason whatsoever;
(n) If the Distributor shall either by himself or by his servants or agents commit or suffer to be committed any act which, in the opinion of the General Manager of the Corporation for the time being at Madras, whose decision in that behalf shall be final, is prejudicial to, the interest or good name of the Corporation or its products; the General Manager shall not be bound to give reasons for such decision.
The Corporation's right to terminate this Agreement under the terms of this clause shall be without prejudice to and without affecting any of its other rights and remedies against the Distributor. In the event of the Corporation terminating this Agreement under the provisions of this clause, it shall not be liable to pay for any loss or compensation in respect of such termination provided that the supply of any LPG product by the Corporation to the Distributor pending expiry of any notice of termination or after any act, contravention or omission by the Distributor entitling the Corporation to terminate this Agreement shall have become known to the Corporation, shall not in any way prejudice or affect the right of the Corporation to revoke and/or enforce the termination of this Agreement and the license granted hereunder.'
In the various sub-clauses of Cl. 27 the grounds on which the distributorship could be terminated have been set out. In this case we are concerned with sub-clause (n) of Cl. 27. A reading of sub-cl. (n) at once indicates that it does not confer any arbitrary power on the Corporation to terminate the distributorship agreement according to its whims and fancies. In order to exercise the right under the said clause it is necessary that the following conditions must be fulfilled :
(i) There should be an act committed by the Distributor himself or by his servants or agents;
(ii) The act should be such on the basis of which the General Manager of the Corporation at Madras forms an opinion that it is prejudicial to the interest or good name of the Corporation or its products.
Therefore, it is clear that the distributorship agreement can be terminated only on' the basis of acts committed, by the distributor or its servants or agents, if on the basis of such acts, the General Manager forms an opinion that it is prejudicial to the interest or good name of the Corporation or its products. The learned counsel for the petitioner, however, pointed out to the last part of the clause which provides that the General Manager was not bound to give reasons for his decision. This only means that there is no obligation on the part of the General Manager to communicate the reasons to the party whose distributorship agreement is terminated and not that he could act without reason.In fact the very two conditions prescribed in the earlier part of the sub-clause clearly show that the distributorship agreement can be terminated only for good reasons and not arbitrarily. In this behalf, it is appropriate to set out the contents of the impugned communication addressed to the petitioner. It reads:
'Please refer to the Indane (Liquified Petroleum Gas) Distributorship (Domestic and Commercial) agreement dt. 5-3-84 executed between you and us in respect of the subject Indane Distributorship.
Your attention is drawn to Cl. 27(n) of the said distributorship agreement which reads as under:
'Notwithstanding anything to the contrary herein contained, the Corporation shall also beat liberty at its entire discretion to terminate this agreement forthwith upon or at any time after the happening of any of the following events, namely, if the Distributor shall either by himself or by his servants, or agents commit or suffer to be committed any act which, in the opinion of the General Manager of the Corporation for the time being at Madras, whose decision in that behalf shall be final, is prejudicial to the interest or good name of the Corporation or its products; the General Manager shall not be bound to give reasons for such decisions.'
It has come to my notice that 228 spurious cylinders i.e. cylinders with their regular marking (like cylinder number and manufacturer's name) completely obliterated from the vertical stays and/or bungs of the cylinders, looking newly painted and virgin were found to be stored in your godown on 29-7-87 when our officials made a surprise inspection of your godown and took an inventory of the cylinders stored in your godown. When our officials asked your Manager who was in charge of t he godown at that time as to how the above spurious cylinders came into your possession, he had no answer to, give our officials. As it 'was thought that it would be dangerous to leave the said spurious cylinders in your custody, our officials required your Manager to surrender the said 228 spurious cylinders and your Manager accordingly handed over the said spurious cylinders to our officials. This fact has been acknowledged by your Manager in writing by way of a letter addressed to our Bangalore Office. A regular inventory sheet was also prepared duly signed by your Manager and our officials. You are aware that it is illegal and dangerous to be in possession of a gas cylinder which is spurious. You are also aware that our Corporation always supplies LPG filled in cylinders conforming to specifications and complying with all statutory requirements. There is no possibility of your receiving such a large number of spurious cylinders from your consumers.
The above act of yours in having been in possession of spurious cylinders is in my opinion an act prejudicial to the interest or good name of the Corporation or its products.
Hence, exercising the right given to us under Cl. 27(n) of the said Distributorship Agreement, we hereby terminate forthwith the said Distributorship agreement and you shall forthwith cease to be our Indane Distributor at Hebbal, Yelahanka and adjacent areas in Bangalore City agglomeration. You are hereby called upon to settle your account with us immediately and pay all amounts due from you to us. You are also hereby called upon to hand over forthwith to us the following items now in your custody.
1. All filled and empty cylinders.
2. Pressure Regulators.
3. Used and unused items of' stationery like SV/TV/ERV/ETV/EMR/Customer History Cards.
4. Indane Technical Manual.
5. LPG Washers/'O' Rings.
Please also arrange to remit all balance amounts collected from the customers against our equipments.'
(Underlining by me)
It may be seen from the contents of the above communication that on the basis of specific acts said to have been committed by the petitioner, the General Manager formed an opinion that the acts of the petitioner were such as were prejudicial to the good name of the Corporation and on the said basis the Corporation terminated the Distributorship agreement. This also supports the view that the termination of distributorship agreement under Cl. 27(n) cannot be done arbitrarily, but can be done only if the conditions prescribed in the said clause are fulfilled. The learned counsel for the petitioner submitted that the opinion that 228 cylinders were spurious itself was not justified and consequently the opinion that their possession was prejudicial to the interest of the company was baseless. In this behalf, all that is necessary Ito observe is that it is open for the petitioner to raise these points in the dispute and plead before the Arbitrator that the termination of distributorship agreement was arbitrary and (hat the material on the basis of which the opinion was formed did not exist or did not justify the formation of such an opinion. If such a plea is raised, the Arbitrator is in duty bound to consider as to whether the opinion formed was based on sufficient material and if not to give appropriate relief to the petitioner. The various sub-clauses including sub-cl. (n) of Cl. 27 are the standard conditions to be incorporated in all the distributorship agreements and therefore made applicable to all those similarly situated. Further they , are intended to ensure that the power to terminate the distributorship agreement is not exercised arbitrarily. Any termination of distributorship, in the absence of any of the grounds specified in any of the clauses would be a clear breach of contract and entities the aggrieved party to seek appropriate relief against the Corporation. Clause 27(n) far from conferring any arbitrary power to terminate the distributorship agreement, it is intended to, control and regulate the powers of the authorities of the Corporation to terminate the distributorship agreement.
15. Learned counsel for, the, petitioner however, contended that if this Court were to take the view that the termination of distributorship agreement cannot it all be questioned in a writ petition on the ground that it was arbitrary and was violative of Art. 14 of the Constitution on the ground that the matter is governed by the terms of the contract, a situation might arise in which the Corporation - might terminate the distributorship agreement of an individual on collateral considerations such as just for the purpose of giving the lucrative business of distributorship of another individual of its favour with impunity. As far as this submission is concerned, it is sufficient to state that in the present case there is no allegation that the distributorship agreement in favour of the petitioner was terminated on any collateral, consideration and that the grounds mentioned in the communication dated 11-8-1987 were only a camouflage for an otherwise oblique purpose. It is needless to state that if the largess; the distributorship in this case, of any one is terminated by the State or an instrumentality of the State with an evil eye and for an oblique purpose, the arms of this Court are long and strong enough to reach and strike it down, and to give relief to the individual who has been the victim of such mala fide exercise of power by the State or an instrumentality of the State in the guise of exercising a right under the contract. That would be a case in which the Corporation would in truth not be exercising its right to terminate the distributorship agreement under any of the clauses- of the contract, but- it would be a case of an instrumentality of the State exercising its power mala fide, otherwise than under the terms of contract notwithstanding the mask covering the real nature of the order. If such a case is made out in any case, it would not only be open for this Court to entertain a writ petition, but it would also be its duty to find out as to whether the termination of the contract was, made in exercise of the right under the agreement or on collateral consideration. But, as stated earlier, there is no such plea and such a question does not arise for consideration.
16. In the result, I make the following order:
(i)The writ petition is dismissed
(ii) Having regard to the facts and circumstances of the case, it is appropriate that there should be no order as to payment of costs.
17. Petition dismissed.