REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 11200 OF 2011 [Arising out of SLP (Civil) No.31535 of 2009]

Allied Motors Ltd.    … Appellant

Versus

Bharat Petroleum Corp. Ltd.              … Respondent

J U D G M E N T

Dalveer Bhandari, J.

1. Leave granted.

2. This appeal is directed against the judgment dated 11th  

August,  2009  delivered  in  Letters  Patent  Appeal  No.296  of  

2009  by  the  Division  Bench  of  the  High  Court  of  Delhi  

upholding the judgment dated 6th May, 2009 passed by the  

learned Single Judge in Writ Petition (Civil) No.2927 of 2005.

3. The  main  issue  which  arises  for  adjudication  in  this  

appeal  pertains  to  the  termination  of  the  dealership  of  the  

appellant in an illegal and arbitrary manner.

4. According  to  the  appellant,  it  had  been  operating  the  

petrol pump for the last 30 years and during this period it was  

given 10 awards from time to time declaring its dealership as  

the best petrol pump in the entire State of NCT of Delhi.  On a  

number of occasions, samples of the appellant were tested by  

the respondent-Corporation and on each occasion its samples  

were found to be as per the specifications.

5. According  to  the  appellant,  it  had  maintained  highest  

standards  and norms of  an excellent  petrol  pump,  yet,  the  

respondent-Corporation, in a clandestine manner, terminated  

its  dealership  in  the  most  arbitrary  manner  and  in  total  

violation of the principles of natural justice.   

6. It was further urged by the appellant that its dealership  

was terminated without even issuing any show cause notice  

and/or giving an opportunity of hearing to it.  The termination  

of  dealership  was  contrary  to  the  mandatory  procedural  

provisions  of  law.  According  to  the  appellant,  the  said  

termination was mala fide, arbitrary and illegal.  

7. It may be pertinent to mention that in the morning of 15th  

May, 2000, an unauthorized police officer accompanied by the  

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officials of the respondent conducted a raid at the appellant’s  

petrol pump.  According to the appellant, the raid was illegal  

as an unauthorized police officer could not conduct a search  

and seize the samples of the appellant.

8.  The appellant urged that the samples taken in this raid  

were  in  complete  violation  of  the  mandatory  procedural  

provisions  of law as provided under the Motor Spirit and High  

Speed  Diesel  (Regulation  of  Supply  and  Distribution  and  

prevention of Malpractices) Order, 1999 (hereinafter referred to  

as  “Order”).   The  appellant  while  reproducing  the  relevant  

provisions of law has submitted as under:-

(a) Clause 4 of the said Order provides for power of search  

and seizure.   Sub-Clause  (A)  of  the  section  authorizes  

any  police  officer  not  below  the  rank  of  the  Deputy  

Superintendent of Police (for short, DSP) duly authorized  

or any Officer of the concerned Oil Company not below  

the rank of Sales Officer to take samples of the products  

and/or seize any of the stocks of the product which the  

officer has reason to believe has been or is being or is  

about to be used in contravention of the said Order.   

9. In the present case, however, the samples were collected  

in complete violation of the aforesaid provisions.  The Police  

official who had conducted the raid and collected the samples  

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was admittedly below the rank of DSP.  This is also recorded  

in the Metropolitan Magistrate’s order dated 27.5.2002 passed  

in FIR No.193 of 2000 wherein it is stated as under:

“In  the  present  case  the  search  and  seizure  was  conducted  by  an  unauthorized police officer of the rank of  Inspector which is totally contrary to the  mandatory provisions of the said Clause  4.”

(b) Sub-Clause (B)  of  Clause 4 of  the said Order  provides  

that while exercising the power of seizure under Clause 4  

(A) (iv) the authorised officer shall record in writing the  

reasons for doing so, a copy of the which shall be given to  

the dealer.   

10. According to the appellant, in the present case, no such  

reasons in writing were provided.

(c)    Clause 5(2) of the said Order lays down the procedure for  

sampling  of  product  which  provides  that  “the  Officer  

authorised in Cl. 4 shall take, sign and seal six samples of  

1 litre each of the Motor Spirit or 2 of 1 lit. each of the  

High Speed Diesel, 2 samples of the Motor Spirit (or one of  

High  Speed  Diesel)  would  be  given  to  the  Dealer  or  

transporter or concerned person under acknowledgement  

with instruction to preserve the sample in his safe custody  

till the testing or investigations are completed, 2 samples  

of  MS  (and/or  one  of  HSD),  would  be  kept  by  the  

concerned Oil Company or department and the remaining  

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two samples of MS (and/or one of HSD) would be used for  

laboratory analysis.”   

11. The appellant  urged that in the  present case,  samples  

were  allegedly  taken  from  6  sources.   Therefore,  the  

respondent  Corporation  as  per  the  provision  should  have  

taken 36 samples (6 samples from each of  the source)  and  

handed over 12 samples (2 from each of the 6 sources) to the  

appellant,  being  the  dealer,  under  acknowledgement.   The  

respondent Corporation however, neither took 36 samples, nor  

did it hand over the prescribed number of 12 samples to the  

appellant.  This is clear from the counter affidavit filed by the  

respondent  in  Writ  Petition  (C)  No.7382  of  2001  placed  on  

record.  It is clearly stated in the counter affidavit filed by the  

respondent Corporation that it is pertinent to state that two  

samples  from  each  of  the  tanks  containing  adulterated  

products  were  drawn  by  the  answering  respondent  in  the  

presence of  the police officials  of  the crime branch and the  

representative of the appellant as well.   

12. Out of these two samples, one sample was retained by  

the  crime  Branch  of  Delhi  Police  and  another  by  the  

respondent, Bharat Petroleum Corporation Limited (for short  

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BPCL).   It  has,  therefore,  been clearly  admitted that only 2  

samples as opposed to 6 samples were drawn from each tank  

and  that  no  sample  was  handed  over  to  the  appellant.  

Furthermore,  the  learned  counsel  appearing  for  the  

respondent  in the proceedings before  the Division Bench in  

LPA  No.296  of  2009,  has  specifically  admitted,  as  is  also  

recorded in page 8 of the impugned order that “there was no  

receipt of two samples from each source being handed over to  

appellant”.   It  is  also  relevant  to  state  that  in  all  previous  

representations made by the appellant to the respondent and  

previous writ petitions filed, the respondent has never denied  

the  averment  that  2  samples  were  not  handed  over  to  the  

appellant.

(d)   Clause 5(3) of the said Order provides that “Samples shall  

be taken in clean glass or aluminium containers.  Plastic  

containers shall not be used for drawing samples.”   

13. According to the appellant,  in the present case, plastic  

containers  were  used  for  drawing  samples  in  complete  

violation of the said provision.  This is also recorded in the  

Metropolitan Magistrate’s order dated 27.5.2002 wherein it is  

stated  that  in  Clause  5  of  the  order  it  was  specifically  

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legislated  that  the  sample  shall  be  taken  in  clean  glass  or  

aluminium  containers  and  plastic  containers  would  not  be  

used for drawing out the samples.  But in clear contravention  

to the mandatory provisions, plastic containers were used by  

the police officer while drawing samples.  From the file, it is  

clear that sample Nos.7, 8 and 9 were drawn from the car of  

the  complainant  in  plastic  containers  by  the  police  and  

therefore, the report on the basis of the samples taken in the  

plastic containers cannot be relied upon at all.

(e)    Clause 5(4) of the said Order provides that “The sample  

label  should  be  jointly  signed  by  the  officer  who  has  

drawn  the  sample,  and  the  dealer  or  transporter  or  

concerned  person  or  his  representative  and  the  label  

shall contain information as regards the product, name  

of  retail  outlet,  quantity  of  sample,  date,  name  and  

signature of the officer, name and signature of the dealer  

or transporter or concerned person or his representative.”  

According to the appellant, this was not done.

14. The  Metropolitan  Magistrate’s  order  dated  27.5.2002  

passed in FIR No.193 of 2000 specifically records as follows:

“The law being as noticed above, it is very clear that  the  search  and  seizure  is  bad  in  law  and  is  in  contravention  of  mandatory  provisions  of  the  Essential  Commodities  Act  and  contravention  of  

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Motor  Spirits  (High Speed Diesel  Act)  and in  any  case  the  prosecution  cannot  establish  its  case  against any of the accused and accused persons are  liable to be discharged on this very ground and no  charge  should  be  framed…  There  is  no  evidence  whatsoever  to  show  that  petrol  supplied  was  adulterated or not.”  

15. The appellant referred to section I (c) of Chapter 6 of the  

Guidelines of 1998 which provides as follows:

“Wherever  samples  are  drawn,  either  pursuant  to  random checks or where adulteration is suspected,  3 sets of signed and sealed samples (6x1 ltr of MS  and 3x1 ltr  of  HSD) should be collected from the  RO, out of which one set should be kept with the  dealer, one with the company and the third to be  sent for laboratory resting within 10 days.  For the  sample  kept  with  the  dealer,  proper  acknowledgement  will  be  obtained and the  dealer  will be instructed to preserve the same in his safe  custody till the testing/investigation are completed.”

16. According to the appellant,  it is clear that the samples  

were collected in violation of mandatory procedure of law as  

provided under the said Order and therefore the termination  

order  passed  on  the  basis  of  test  reports  of  samples  so  

collected is completely illegal and liable to be set aside.    

17. The appellant relied on the case of  Harbanslal Sahnia  

and Another v. Indian Oil Corporation Ltd. and Another  

(2003)  2  SCC  107,  wherein  the  Indian  Oil  Corporation  

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terminated the dealership of Harbanslal Sahnia on the basis  

that the sample drawn from the petrol pump did not meet the  

standard specification.  This Court found that two government  

orders  providing  for  the  procedure  for  taking  samples  had  

been violated and in view of the same found that the failure of  

the  sample  taken  became  irrelevant  and  non-existent  fact  

which  could  not  have  been  relied  upon  for  terminating  

dealership, and quashed the order terminating the dealership  

and restored possession.  It is submitted that the fact that two  

samples were not left with the appellant is not only a violation  

of the mandatory principles of law but also of fair play and  

natural justice as the appellant is deprived of its valuable right  

to contest the veracity of the test reports.  This provision of law  

is the single most important check on arbitrary action by the  

respondent.

18. According to the appellant, these samples were taken in  

violation of the mandatory provisions of law. The test reports,  

given on 16.5.2000, formed the basis for the termination of the  

appellant’s dealership.  The termination was in clear violation  

of the procedures prescribed by law. The termination was also  

in violation of mandatory Marketing Discipline Guidelines and  

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the  prescribed  procedures.  The  termination  was  also  in  

violation  of  the  principles  of  natural  justice  and  fairplay.  

According  to  the  appellant,  this  is  clear  from the  following  

facts:-

a) Clause (d) of Section 1 of the Marketing Disciplines provides  

that:  If  the  samples  is  certified  to  be  adulterated,  after  

laboratory test, a show cause notice should be served on  

the dealer  and explanation of  the dealer  sought within 7  

days of the receipt of the show cause notice.  Thus under  

the said provision seven days is to be given to the dealer to  

provide  an  explanation  and  only  if  explanation  is  found  

unsatisfactory  can  appropriate  action  be  taken.   In  the  

instant case, however, no show cause notice was given and  

no opportunity was given to the appellant to provide any  

explanation.  Instead appellant’s dealership was summarily  

terminated  on  the  very  date  the  alleged  test  reports  

certifying  the  sample  to  be  adulterated  was  received  i.e.  

16.5.2000, the very next day after the samples were taken.  

It is relevant to state that the premeditated nature and mala  

fide of the test reports was writ large as the test reports on  

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the basis of which the appellant’s dealership was allegedly  

terminated itself indicated “terminated dealer”.

b) Clause  (d)  of  Section  1  of  the  Marketing  Discipline  

Guidelines further provides that if the explanation of dealer  

is  not  satisfactory,  the  Company  should  take  action  as  

follows:

a. Fine  of  Rs.1  lakh  and  suspension  of  sales  and  supplies for 45 days in the first instances;

b. Termination in the second instance.

19. It  is  thus  clear  from  the  above  provision  that  the  

Guidelines  prescribe  termination  only  in  case  of  second  

instance of adulteration of Motor Spirits.   It  is  an admitted  

case that this was the first instance of alleged adulteration of  

Motor Spirits.

20. One of the grounds taken by the respondent-Corporation  

for termination in its letter dated 16.5.2000 was that “in the  

past also a product sample collected from the retail outlet was  

found  to  have  failed  specification.”  This  earlier  offence  in  

respect  of  the  “product  sample”  referred  to  in  the  order  of  

16.5.2000, was, however, in respect of lube sample and not  

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petrol/MS.  This is  clear from the Delhi  High Court’s  order  

dated  9.9.2004  passed  in  WP  (C)  No.7382  of  2001,  which  

records respondent Corporation’s counsel’s submission in that  

respect as below: “It  was also emphasized that there was a  

past history where inspection of the outlet had been carried  

out on 12.12.1998 and Lubes samples were collected which  

were found off-specifications.”

21. It is also submitted that a previous alleged case of off-

spec lube, does not make the first alleged case of motor spirit  

adulteration,  a  second  offence  of  motor  spirit  adulteration.  

Off-spec lube is not a case of adulteration which is clear from  

the  definition  of  “adulteration”  set  out  in  the  Marketing  

Discipline  Guidelines  which  defines  “adulteration”  as  “the  

introduction of any foreign substance into motor spirit/high  

speed  diesel  illegally  or  unauthorizedly.”   Lube  falls  into  a  

completely different category and is in a separate chapter in  

the  Marketing  Discipline  Guidelines  being  Chapter  7  as  

contrasted from Chapter 6 which deals with “Adulteration of  

Product”.  Chapter 7 of the said guidelines separately provides  

for  prevention  of  irregularities  at  retail  outlet  in  respect  of  

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lubes.   Clause  9 of  the said Chapter provides the following  

punishments in case of sales of adulterated lubes.

a. Suspension  of  sales  and  supplies  of  all  products  for  15  days  along  with  a  fine  of  Rs.20,000/- in the first instance.

b. Suspension of sales and supplies for 30 days  along with a fine of Rs.50,000/- in the second  instance.

c. Termination in the third instance.

22. Thus  while  the  guidelines  provide  for  termination  of  

dealership in the second instance of adulteration of petrol/MS,  

the punishments prescribed for adulteration of lubes provides  

for termination only in case of third instance.  

23. Further,  the  fourth  note  provided  at  the  end  of  this  

Chapter 6 provides as under:

“In case, two or more irregularities are detected at  the same time at the same RO, action will be taken  in  line  with  what  is  listed  in  MDG  under  the  relevant category for each irregularity.”

24. According  to  the  appellant,  the  respondent  has  clearly  

acted  in  violation/contravention  of,  or  at  the  very  least  in  

departure from, the Motor Spirits High Speed Diesel Order and  

the  Marketing  Discipline  Guidelines  and  has  also  acted  

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contrary to the principles of natural justice and fair play both  

in  respect  of  taking  samples  which  formed  the  basis  of  

termination,  as  also  in  respect  of  the  termination  of  

dealership.

25. The appellant referred to the decision  in Bharat Filling  

Station and Another  v.  Indian Oil Corporation Ltd.  104  

(2003)  DLT  601  wherein  the  Delhi  High  Court  specifically  

referred the Market Discipline Guidelines.  Relevant part of the  

judgment is reproduced as under:-

“As  noted  above,  IOC,  whenever  enters  into  dealership  agreement,  executes  memorandum  of  agreement  which  lays  down  standard  terms  and  conditions.   These  conditions,  inter  alia,  include  provisions for termination of the dealership as well.  It is provided that the agreement can be terminated  by  giving  required  notice.   It  may  however  be  mentioned that at the same time in order to ensure  that such agreements with the dealers are worked  out in a systematic manner and the respondent IOC  does not invoke the termination clause arbitrarily,  Government  of  India  has  issued  Marketing  Discipline Guidelines.

26. The appellant also referred to the decision of this Court  

in  Ramana  Dayaram  Shetty  v.  International  Airport  

Authority of India and Others  (1979) 3 SCC 489, wherein  

this Court held that “it is well settled rule of administrative law  

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that  an  executive  authority  must  be  rigorously  held  to  the  

standards by which it professes its actions to be judged and it  

must  scrupulously  observe  those  standards  on  pain  of  

invalidation of an act in violation of them.”  It  is submitted  

that the respondent was bound to act in accordance with the  

Marketing Discipline Guidelines.

27. It  is  further  submitted  that  in  the  case  of  Ramana  

Dayaram  Shetty (supra),  this  Court  held  that  “the  

Government cannot act arbitrarily at its sweet will and, like a  

private  individual,  deal  with  any  person  it  pleases,  but  its  

action must be in conformity with standard or norm which is  

not arbitrary, irrational or irrelevant.  The power or discretion  

of the Government in the matter of grant of largesse including  

awards  of  jobs,  contracts,  quotas,  licenses  etc.  must  be  

confined  and  structured  by  rational,  relevant  and  non-

discriminatory  standard  or  norm  and  if  the  Government  

departs from such standard or norm in any particular case or  

cases,  the  action  of  the  Government  would  be  liable  to  be  

struck down unless it can be shown by the Government that  

the departure was not arbitrary, but was based on some valid  

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principle which in itself  was not irrational,  unreasonable or  

discriminatory.”   

28. The appellant further submitted that in the present case  

the  respondent  has departed from the standard norms laid  

down in the Marketing Discipline Guidelines and the standard  

norms of natural justice and fairplay and that such departure  

was  clearly  arbitrary,  irrational,  unreasonable  and  

discriminatory.  

29. The  appellant  urged  that  the  respondent  Corporation  

terminated  the  dealership  without  even  issuing  show-cause  

notice  and/or  providing  any  opportunity  of  hearing.   The  

termination is clearly in violation of the principles of natural  

justice.  

30. The  appellant  also  asserted  that  the  termination  was  

mala fide is  further  strengthened by the fact  of  an internal  

email of the respondent dated 3 days after the raid on May 18,  

2000  stating  that  “the  samples  were  taken  as  complaint  

samples but the comments on the test result were given due to  

reasons explained to you over the phone.”

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31. It is also stated that another email dated 22nd May, 2000  

recorded  that  “Delhi  Territory  had drawn samples  regularly  

from the retail  outlet.   All  10 samples drawn in 1999-2000  

were found on spec.”   Despite this, the dealership had already  

been terminated the very day after the raid.

32. The appellant also urged that the order of the Delhi High  

Court in Writ Petition (Civil) No.7382 of 2001 dated 9.9.2004  

directed the respondent to give a show cause notice, personal  

hearing and pass a reasoned order.  It was not given and the  

appellant was constrained once again to approach the High  

Court who then directed the respondent to grant the appellant  

a  personal  hearing  at  a  higher  level.  The  action  of  the  

respondent is  mala fide which is reflected from the fact that at  

various  stages  the  respondent-Corporation  has  tried  to  

improve  its  case  by  supplanting  reasons  in  support  of  the  

termination.  This is clear from the following facts:

i. The  first  notice  dated  16.5.2000  terminating  the  dealership  points  out  the  following  three  grounds for termination:

a. One of the samples during the raid and  taken  from  the  laboratory  testing  had  failed specification of U.L.P.

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b. In  the  past  also  a  product  sample  collected from the retail outlet was found  to have failed specification; and

c. Breach of agreement between the parties  vide which the appellant had covenanted  not to adulterate petroleum products.

ii. Despite  the  fact  that  termination  order  was  quashed by the High Court vide its order dated  9.9.2004 passed in W.P. (C) No.7328 of 2001,  with specific direction to the respondent to give  the  appellant  personal  hearing  and  pass  a  reasoned  order,  the  respondent  Corporation  vide  letter  22.11.2004  confirmed the  original  order  of  termination  without  granting  the  appellant an opportunity of hearing.  Further  despite  Court’s  specific  order  to  treat  the  original termination order dated 16.5.2005 as  the show-cause notice, the respondent added  additional  grounds  of  termination  and  terminated the dealership on these grounds in  addition  to  the  grounds  taken  in  16.5.2000.  The additional grounds were:

a. Loss of Market Share in 1997.

b. Non-availability of density record during  routine  mobile  inspection  on  28.4.1998  and 30.5.1995;

c. Failure  to  meet  specifications  during  a  routine inspection on 12.12.1998;

d. Two complaints received in 1997.

33. The appellant submitted that it is pertinent to note that  

all the grounds pertain to a period prior to the termination of  

the  dealership  in  2000  and  hence  were  known  to  the  

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respondent  even at  the  time it  issued its  termination order  

dated  16.5.2000.   Despite  the  same  these  were  taken  as  

grounds  for  the  first  time  in  the  year  2004  making  it  

abundantly clear that these grounds were added as an after  

thought only with a view to improve its case of termination.

34. The  appellant  further  urged  that  in  the  order  dated  

16.5.2000 it was simply stated that one of the samples drawn  

had failed specification of ULP without clarifying which ULP  

specification it had failed.  However, as per the order dated  

22.11.2004, the ULP specification that the samples were said  

to have failed were in respect of Research Octane Number and  

ASTM distillation which were co-incidentally the only two tests  

that IIP Dehradun had not carried out when the samples were  

sent  to  IIP Dehradun pursuant  to  Delhi  High Court’s  order  

dated 6.12.2000 passed in W.P. (Crl.) No.877 of 2000.  In fact  

since these two tests were not carried out by IIP Dehradun in  

its  order  dated  22.11.2004,  the  test  reports  were  not  

considered as being irrelevant.

35. The appellant further urged that the mala fide intention  

of the respondent is clearly evident that even at the stage of  

final  disposal  and  two  years  after  the  filing  of  the  present  

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special leave petition, the respondent has made serious effort  

to improve its case by filing a supplementary affidavit dated  

19.8.2011, vide which the respondent has sought to allege for  

the first time that it handed over requisite number of samples  

to  the  appellant.   The  supplementary  affidavit  states  that  

“Samples  of  products  were  collected  from  five  tanks  of  

petrol/motor  spirit.  From  each  of  the  five  tanks  of  

petrol/motor spirit, six sets of samples in aluminium bottles  

(i.e. total of thirty 30 sample bottles) were taken.  In addition  

to this, six samples in aluminium bottles were taken from the  

tank lorry which was found to be decanting petrol/motor spirit  

in the underground tanks for petrol/motor spirit.   As such,  

the total number of samples taken in bottles were 36.  Out of  

the 36 sample bottles collected, 12 were retained by the BPCL,  

12 were handed over to the dealer and 12 were sent for testing  

to the specified laboratory.  

36. The appellant further submitted that the said averment is  

completely false and contradictory to its own pleadings before  

the High Court in WP (C) No.7382 of 2001 produced on record  

by  the  respondent  itself  with  the  counter  filed  by  it  in  the  

present proceedings.  It is stated that “it is pertinent to state  

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that  two  samples  from  each  of  the  tanks  containing  

adulterated products were drawn by the answering respondent  

in  the  presence  of  the  police  officials  of  crime  branch  and  

representative  of  the  petitioner  as  well.  Out  of  these  two  

samples one sample was retained by the crime branch of Delhi  

Police and the other by BPCL.”

37. The appellant further submitted that it is also pertinent  

to mention that in the proceedings before the Division Bench  

of the High Court in LPA No.296 of 2009 the learned counsel  

appearing  for  the  respondent  Corporation  has  specifically  

admitted and is also recorded in page 8 of the impugned order  

that “there was no receipt of two samples from each of source  

being handed over to the appellant-petitioner.”

38. The  appellant  submitted  that  it  is  clear  that  the  

termination of the dealership by the respondent Corporation  

was pre-determined and mala fide and hence liable to be set  

aside.

39. On behalf  of  the  respondent,  Shri  Arjun Hira,  General  

Manager  (Retail),  North,  Bharat  Petroleum Corporation Ltd.,  

has filed an affidavit before this Court refuting the allegation  

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that the termination of the agency was predetermined or mala  

fide.  The respondent Corporation submitted that because of  

adulteration  in  the  petrol,  the  respondent-Corporation  had  

taken  swift  action  in  order  to  save  its  reputation.   The  

respondent-Corporation referred to clause 10(g)  of  the DPSL  

Agreement dated 28.1.1971 which reads thus:

“Not to adulterate the Petroleum products supplied  by  the  Company  and  at  all  times  to  take  all  reasonable  precautions  to  ensure  that  the  Motor  Spirit  or  H.S.D.  is  kept  free  from water,  dirt  and  other impurities and served from the pumps in such  conditions.”    

40. The  respondent-Corporation  submitted  that  the  

termination was in line with the terms and conditions of the  

Agreement entered into between the parties and the breach of  

trust  has  been  committed  by  the  appellant.  It  is  also  

mentioned  that  since  the  respondent-Corporation  had  not  

received  any  response  to  the  letter  dated  16.5.2000  it  was  

assumed that the appellant had accepted the wrong deeds and  

had no grievances.

41. The  respondent  also  submitted  that  the  respondent-

Corporation did not  show any haste  in getting  the  samples  

tested.   The  samples  were  drawn  and  tested  as  per  the  

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procedure  laid  down  and  on  the  receipt  of  the  results  

indicating  the  adulteration  of  products.   Thus,  the  action  

contemplated  under  the  provisions  of  the  DPSL  Agreement  

dated 28.01.1971 was taken.  

42. The  respondent-Corporation  denied  that  the  action  

initiated against the appellant was in any manner mala fide or  

manipulated  for  grabbing  the  business  outlet  on  the  false  

pretext.   The  respondent-Corporation  also  submitted  that  

reliance cannot be placed upon the Report submitted by the  

IIP Dehradun as the tests conducted by them do not comply  

the  specifications  laid  down  by  the  Bureau  of  Indian  

Standards.  Moreover, the IIP, Dehradun did not conduct the  

RON Test.  Not following the specifications and conducting of  

the  RON Test  was  essential  for  testing  the  quality  and the  

specification of the ULP for meeting specifications of the Motor  

Spirit.  

43. According to the respondent, the report submitted by the  

IIP, Dehradun is sacrosanct.   The said sample was sent much  

after  the  incident  of  adulteration  and  the  same  is  not  in  

accordance with the MS/HSD Control October, 1998 issued by  

the Government of India.  

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44. In  the  rejoinder  affidavit,  the  appellant  reiterated  its  

submissions  mentioned  in  the  petition  and  denied  the  

allegations levelled in the counter affidavit.  

45. The appellant submitted that the accuracy and veracity  

of  the  original  test  report  also  comes  into  question  as  the  

results of the independent laboratory, the IIP Dehradun report  

indicated no adulteration.  In addition, the original test report  

on  the  basis  of  which  the  appellant’s  dealership  was  

terminated  can  also  not  be  relied  upon  in  view  of  the  

conclusive  finding  of  the  Metropolitan  Magistrate  that  the  

samples had been taken in violation of mandatory provisions  

of law.   

46. According to the appellant, as per the report submitted  

by IIP, Dehradun the samples were not adulterated though the  

report  had not  gone  into  the  aspect  of  RON on account  of  

which the samples were alleged to have failed the specification.  

Thus, even assuming, though not conceding, that there was  

no test report which conclusively established that the petrol  

was  not  adulterated  there  was  also  no  test  report  which  

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conclusively  established  that  the  petrol  was  in  fact  

adulterated.

47. The  appellant  urged  in  the  rejoinder  that  the  

Metropolitan  Magistrate  vide  his  order  dated  27.5.2002  

discharged all the accused persons as the Court was satisfied  

that prima facie there was no material on record even to frame  

charges  against  them.   The  order  clearly  records  that  the  

search and seizure carried out was unlawful and in complete  

contravention  and disregard of  the  mandatory  provisions  of  

law inasmuch as the raid was conducted by an official below  

the  rank  of  Sub-Inspector  and  the  samples  were  drawn  in  

plastic containers.  The Court also observed that there was no  

evidence  whatsoever  to  show  that  the  petrol  supplied  was  

adulterated.  The finding of the Metropolitan Magistrate reads  

thus:

“the law being as noticed above, it is very clear that  the  search  and  seizure  is  bad  in  law  and  is  contravention  to  the  mandatory  provisions  of  Essential Commodities Act and contravention to the  Motor  Spirits  (High Speed Diesel)  Act  and in  any  case  the  prosecution  cannot  establish  its  case  against any of the accused and accused persons are  liable to be discharged on this ground alone and no  charges can be framed.

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It is very clear that the search and seizure is bad in  law  and  is  in  contravention  to  the  mandatory  provisions  of  Essential  Commodities  Act  and  contravention  to  the  Motor  Spirits  (High  Speed  Diesel) Act and in any case the prosecution cannot  establish its case against any of  the accused and  accused persons are liable to be discharged on this  ground  alone  and  no  charges  can  be  framed.  Further,  it  is  an admitted that that there was no  receipt  of  two  samples  from  each  source  being  handed over to the petitioner.  This is clear evidence  of the fact that the samples were never handed over.  In  addition,  the  High  Court  in  its  order  dated  9.9.2004 held that “.. there is no manner of doubt  that the principles of law applied to the given facts  of  the  present  case  are  squarely  covered  by  the  judgment  of  the  Supreme  court  in  Harbanslal  Sahnia’s case.”

48. Mr.  Mukul  Rohtagi,  learned Senior  Advocate appearing  

for the appellant in support of his contentions placed reliance  

on some of the following judgments.

49.  In Harbanslal Sahnia and Another (supra), the Court  

dealt  with  the  question  of  termination  of  dealership  by  the  

Indian Oil Corporation Ltd.  In this case, it was asserted before  

this Court that dealership has been terminated on irrelevant  

and non-existent grounds, therefore, the order of termination  

is  liable  to  be  set  aside.  In  this  case,  there  has  not  been  

compliance of the procedure.  The failure of the sample taken  

from appellants’  outlet  on  11.2.2000  becomes  an irrelevant  

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and non-existent fact which could not have been relied on by  

the  respondent  Corporation  for  cancelling  the  appellants’  

licence.  

50. In the above case, the Court came to the conclusion that  

the dealership was terminated on irrelevant and non-existent  

cause.  The Court while allowing the appeal quashed and set  

aside  the  Corporation’s  order  terminating  dealership  of  the  

appellants.

51. Reliance has been placed on the celebrated judgment of  

the Privy Council in Nazir Ahmad v. King Emperor AIR 1936  

PC 253 wherein the principle has been enunciated that where  

a power is given to do a certain thing in a certain way the  

thing must be done in that way or not at all.   Other methods  

of performance are necessarily forbidden.  

52. Reliance has also been placed on decision in  Ramana  

Dayaram Shetty (supra) wherein this Court has held thus:

“The power or discretion of the Government in the  matter of grant of largesse including award of jobs,  contracts,  quotas,  licences,  etc.  must  be  confined  and  structured  by  rational,  relevant  and  non- discriminatory  standard  or  norm  and  if  the  Government departs from such standard or norm in  any  particular  case  or  cases,  the  action  of  the  

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Government  would  be  liable  to  be  struck  down,  unless it can be shown by the Government that the  departure was not arbitrary, but was based on some  valid  principle  which  in  itself  was  not  irrational,  unreasonable or discriminatory.”

53. In  this  case,  the  Court  held  that  the  action  of  the  

respondent  was invalid.   The  acceptance  of  the  tender  was  

invalid as being violative of equality clause of Constitution as  

also  of  the  rule  of  administrative  law  inhibiting  arbitrary  

action.  

54. Reliance  has  been  placed  on  Kumari  Shrilekha  

Vidyarthi and Others v. State of U.P. and Others (1991) 1  

SCC 212, the Court observed thus:  

“48. ……Non-arbitrariness,  being  a  necessary  concomitant of the rule of law, it is imperative that  all actions of every public functionary, in whatever  sphere, must be guided by reason and not humour,  whim,  caprice  or  personal  predilections  of  the  persons  entrusted  with  the  task  on  behalf  of  the  State and exercise of all power must be for public  good instead of being an abuse of the power.”

55. Reliance  has  also  been  placed  on  Karnataka  State  

Forest  Industries  Corporation  v.  Indian  Rocks  (2009)  1  

SCC 150, the Court observed thus:  

“38. Although  ordinarily  a  superior  court  in  exercise of its writ jurisdiction would not enforce the  terms  of  a  contract  qua  contract,  it  is  trite  that  when  an  action  of  the  State  is  arbitrary  or  

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discriminatory and, thus, violative of  Article 14 of  the Constitution of India, a writ petition would be  maintainable  (See:  ABL  International  Ltd.  v.  Export  Credit  Guarantee  Corpn.  Of  India  Ltd.  (2004) 3 SCC 553).

56. Reliance  has  also  been  placed  on  Gujarat  State  

Financial Corporation v. M/s. Lotus Hotels Pvt. Ltd. (1983)  

3  SCC 379.    In  this  case  the  Court  held  that  the  public  

corporation dealing with public cannot act arbitrarily and its  

action  must  be  in  conformity  with  some  principles  which  

meets the test of reason and relevance.

57. We  have  heard  the  learned  counsel  for  the  parties  at  

length and have perused the decisions relied on by the parties.  

58. In  the  instant  case,  samples  were  taken  on  15th May,  

2000.  On the very next day i.e. on 16th May, 2000, without  

even giving a show-cause notice and/or giving an opportunity  

of  hearing,  the  respondent-Corporation  terminated  the  

dealership of the appellant. The appellant had been operating  

the petrol pump for the respondent for the last 30 years and  

was given 10 awards declaring its dealership as the best petrol  

pump in the entire State of NCT Delhi.  During this period, on  

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a number of occasions, samples were tested by the respondent  

and were found to be as per specifications.   

59. In  the  instant  case,  the  haste  in  which  30  years  old  

dealership  was  terminated  even  without  giving  show-cause  

notice  and/or  giving  an  opportunity  of  hearing  clearly  

indicates  that  the  entire  exercise  was  carried  out  by  the  

respondent  Corporation  non-existent,  irrelevant  and  on  

extraneous considerations.  There has been a total violation of  

the  provisions  of  law  and  the  principles  of  natural  justice.  

Samples were collected in complete violation of the procedural  

laws and in non-adherence of the guidelines of the respondent  

Corporation.

60. On  consideration  of  the  totality  of  the  facts  and  

circumstances  of  this  case,  it  becomes  imperative  in  the  

interest of justice to quash and set aside the termination order  

of  the  dealership.   We,  accordingly,  quash  the  same.  

Consequently,  we  direct  the  respondent-Corporation  to  

handover the possession of the petrol pump and restore the  

dealership  of  petrol  pump  to  the  appellant  within  three  

months from the date of this judgment.   

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61. The appeal is consequently allowed with costs which is  

quantified at Rs.1,00,000/- (Rupees one Lakh only) to be paid  

by  the  respondent  Corporation  to  the  appellant  within  four  

weeks from today.

                           ….............................J.                           (Dalveer Bhandari)

  ….............................J.  (Dipak Misra)  

 New Delhi; December 16, 2011

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