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REPORTABLE        

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 3838-3839 OF 2013 (Arising out of SLP (C) Nos. 31536-31537 of 2009)

Bharat Petroleum Corporation Ltd.                   .... Appellant  (s)

Versus

M/s Jagannath & Co. & Ors.                          .... Respondent(s)

J U D G M E N T  

P. Sathasivam, J.

1) Leave granted.

2) These  appeals  have  been  filed  against  the  final  

judgment and order dated 09.10.2009 passed by the High  

Court of Judicature at Allahabad in C.M.W.P.  No.  26181 of  

2006  and  order  dated  06.11.2009  in  Civil  Misc.  Review  

Petition  No.  286203  of  2009.   By  judgment  dated  

09.10.2009, the High Court allowed the writ petition filed by  

the contesting respondents  herein  and quashed the order  

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dated 18.01.2006 passed by the Territory Manager (Retail),  

Meerut, BPCL terminating the dealership licence of the outlet  

of  respondent  No.1-Firm  and  directed  restoration  of  their  

dealership.  Review  petition  filed  by  the  appellant  herein  

against the said order was also dismissed on 06.11.2009 by  

the High Court.  

3) Brief facts:  

a) The appellant – Bharat Petroleum Corporation Ltd. (in  

short “BPCL”) is a Government of India Undertaking under  

the  administrative  control  of  the  Ministry  of  Petroleum &  

Natural  Gas  and  is  engaged  in  refining,  distributing  and  

selling petroleum products such as Motor Spirit (MS/Petrol),  

High Speed Diesel (HSD), Kerosene, Liquified Petroleum Gas  

(LPG) etc., all over the country.  Respondent No.1-Firm is a  

licensed dealer of the BPCL, selling petroleum products from  

its  Retail  Outlet  (RO)  at  Court  Road,  Saharanpur,  U.P.  

Originally,  the  Dealership  Licence  was  granted,  vide  

agreement dated 24.07.1975.  

b) It is the case of the BPCL that on 22.08.2005, a routine  

inspection  of  the  said  RO  was  conducted  by  a  team  

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consisting  of  Territory  Manager,  Senior  Sales  Officer  and  

Senior Engineering Officer, Meerut in the presence of one of  

the signatories to the said Dealership Licence viz., Shri Alok  

Kumar  Gupta-Respondent  No.  3  herein.   During  the  

inspection,  certain  irregularities/variations  were  found  for  

which samples of MS/ULP, SPEED and HSD were taken and  

the  sale  for  all  the  products  was  suspended  and  the  

dispensing units and tanks were sealed after taking meter  

readings.   Thereafter,  on 23.08.2005, the seized samples  

were sent to the Quality Control Laboratory at Shakurbasti,  

Delhi for testing.  Vide test reports dated 24.08.2005, the  

Laboratory confirmed that  the samples failed to meet  the  

required specifications.   

c) Being  aggrieved,  the  respondents  instituted  a  suit  

being  O.S.  No.  695  of  2005  before  the  Civil  Judge  (Sr.  

Division), Saharanpur for resumption of supply of petroleum  

products and for restraining the BPCL from interfering with  

the sales and supplies of petroleum products from their RO  

along with an application for temporary injunction.   

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d) On 02.09.2005, BPCL filed a report with regard to the  

samples taken from the outlet.  Against the said report, the  

respondent-Firm moved an application raising objection that  

the test reports are not based on the samples taken from the  

outlet  and  prayed  for  redrawal  of  the  samples  in  the  

presence of independent witnesses.  

e) On 07.09.2005, BPCL issued a show cause notice to the  

respondents as to why action should not be taken against  

them  including  termination  of  the  dealership.   The  

respondents put forth their stand by way of a reply dated  

21.09.2005.  By order dated 03.10.2005, learned Civil Judge  

dismissed the application for issuing of temporary injunction.  

Vide order dated 18.01.2006, the Territory Manager (Retail),  

Meerut, terminated the dealership agreement/licence of the  

respondents  with  immediate  effect.   Since  the  dealership  

licence  of  the  respondents  got  terminated  and  the  

possession of the outlet was handed over to M/s Om Filling  

Station (Respondent No. 8 herein), they filed an application  

for withdrawal of the suit and by order dated 22.02.2006, the  

said suit was withdrawn.   

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f) Thereafter,  the  respondent-Firm  filed  a  writ  petition  

being C.M.W.P. No. 26181 of 2006 before the High Court for  

quashing  the  termination  order  dated  18.01.2006.   By  

impugned  judgment  dated  09.10.2009,  the  High  Court  

allowed the petition and quashed the termination order and  

directed the BPCL to restore the dealership.   

g) Aggrieved by the said order, the BPCL filed a Review  

Petition being No.  286203 of 2009 before the High Court.  

The High Court, by order dated 06.11.2009, dismissed the  

said review petition.

h) Being aggrieved by the judgment dated 09.10.2009 for  

restoring  the  dealership  and  order  dated  06.11.2009  

dismissing the review petition, the appellant-BPCL has filed  

these appeals by way of special leave.

4) Heard Mr.  Sudhir Chandra, learned senior counsel for  

the  BPCL,  Mr.  Shanti  Bhushan,  learned  senior  counsel  for  

Respondent  No-1,  Mr.  R.P.  Gupta,  learned  counsel  for  

Respondent No.  3 and Mr.  Harish Chandra,  learned senior  

counsel for the Union of India.

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5) Before going into the contentions, learned counsel for  

the  contesting  respondents  highlighted the  background of  

the  case  as  a  long  and  chequered  history  in  order  to  

consider the stand put forth by them.  As per the information  

furnished,  it  is  seen  that  37  years  back,  vide  agreement  

dated  24.07.1975,  M/s  Burmah  Shell  Oil  Storage  &  

Distributing  Company  (now  BPCL)  has  entered  into  a  

dealership  agreement  with  the respondent-firm.   Since its  

beginning in the year 1975, not even a single deficiency has  

been reported in the matter of measurement or purity either  

by the parent company – M/s Burmah Shell or by the BPCL  

during  the  course  of  regular  inspection  carried  out  every  

month.  It is also pointed out that only once a notice was  

issued on 09.03.1995 for lesser sales.  It is also pointed out  

that  on  22.08.2005,  one  Amit  Garg,  impleaded  as  

respondent No.4 in the High Court (respondent No.6 herein),  

who  was  holding  the  post  of  Territory  Manager  (Retail),  

Meerut and against whom allegations of mala fide had been  

made in paragraph Nos.  11 & 12 of the writ  petition, has  

conducted regular inspection and found no deficiency in the  

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measurement.   However,  he  took  into  custody  Sales  and  

Density Registers and collected 8 samples – two samples of  

ULP from ULP 20KL Tank,  two samples  of  ULP from 10KL  

Tank, two samples of Speed from Speed Tank, one sample of  

HSD  from HSD  Tank  and  one  sample  from barrel.   After  

collecting the samples,  he sealed all  the five pumps,  viz.,  

two of ULP, two of Speed and one of HSD.  It is pointed out  

that  although,  in  total,  eight  samples  were  collected  but  

respondent No.6 herein has filed photocopies of only seven  

sealed  covers  of  wooden  containers  duly  signed  by  the  

dealer but the photocopy of one of the two samples of ULP  

collected from 10KL Tank has not been filed.   

6) Mr.  Sudhir  Chandra,  learned senior  counsel  for  BPCL,  

after  taking  us  through  the  impugned  order  of  the  High  

Court,  submitted  that  in  view  of  the  perversity  in  the  

conclusion, the same has to be interfered with.  On the other  

hand,  Mr.  Shanti  Bhushan,  learned  senior  counsel  for  

respondent No.1-Firm, submitted that inasmuch as the BPCL  

failed to follow the principles of natural justice contrary to  

Section  20  of  the  Petroleum  Act,  1934  and  Marketing  

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Discipline Guidelines, 2005 (in short, “the Guidelines”), the  

High Court was fully justified in setting aside the order of  

termination  and  no  interference  is  warranted  exercising  

jurisdiction under Article 136 of the Constitution of India.   

7) In  view of  the above,  it  is  important  to  consider  the  

relevant provisions of the Guidelines.  As per clause (c) of  

para 2.4.5 of the Guidelines, the samples so collected would  

be  sealed  and labeled  and the  labels  so  pasted  over  the  

containers must have the product name, name of the retail  

outlet,  package  type,  sample  source,  quantity  of  sample,  

sampling  date,  batch  number  etc.,  and  should  be  jointly  

signed  by  the  dealer  or  his  representative(s)  and  the  

Inspecting  Officer.   As  per  clause  (a)  of  para  2.4.5,  the  

Inspecting Officer has to draw three samples from one tank–  

one for the dealer, second for the Company and the third will  

be sent to the Laboratory for testing.  In order to ensure that  

all  the  three  containers  are  containing  samples  from the  

same tank,  all  the  three  containers  must  have  the  same  

batch numbers duly signed by the dealer and the Inspecting  

Officer, otherwise it would be difficult to know as to whether  

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the  container  left  with  the  dealer  was  containing  sample  

from the  same  tank  as  has  been  sent  for  testing  to  the  

laboratory.  It is the complaint of the contesting respondents  

that  the  said  officer,  however,  allotted  three  different  

numbers  to  the  containers  containing  samples  from  the  

same tank.  Moreover, the BPCL has filed  photocopies of the  

labels pasted over 7 sealed containers duly signed by the  

dealer,  each containing aluminium container Nos.  008997,  

008950,  008923,  008976,  008949,  008916  and  008952  

along with wooden container Nos. 008960, 008957, 008923,  

008976,  008949,  008916 and 008952 in which aluminium  

containers have been placed.  It is further pointed out by the  

contesting respondents that these numbers do not co-relate  

with the container numbers purported to have been sent by  

the Inspecting Officer to the Laboratory because all the three  

containers  containing  sample  from  the  same  tanker  had  

been differently numbered.   

8) It is also demonstrated by the contesting respondents  

that  out  of  8  samples  so  collected,  only  5  samples  were  

tested  by  the  Company Laboratory.   Also,  no  explanation  

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was given about the other three samples.  It is the claim of  

the contesting respondents that the BPCL has filed report in  

respect of only 5 samples and report of 3 samples has either  

been suppressed or has not been sent to the Laboratory and  

only a forwarding letter has been filed.  It is also highlighted  

that the Laboratory has also not indicated the numbers of  

the containers so tested in its report.  In such circumstances,  

as rightly pointed out, it is impossible to know which sample  

has been tested by the Laboratory.   It  has also not  been  

mentioned in the report that the Laboratory has received the  

samples  in  sealed  covers  and  the  seals  were  opened  by  

them  as  is  the  practice  in  every  report  received  from  

forensic laboratory.  It is further highlighted that the absence  

of  container  numbers  in  the  report  raises  a  doubt  as  to  

whether the laboratory has tested the same samples as had  

been sealed and counter signed by the dealer or some other  

contaminated  samples.    These  important  questions  were  

raised before the writ Court alleging that the samples tested  

were not of those collected from the respondent-Firm.

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9) In order to ensure fairness in testing the samples, it has  

been provided in clause (D) of para 2.5 of the Guidelines that  

in case of sample failure, in the event of request for testing  

by  the  dealer,  the  same  shall  be  tested  at  Company’s  

Laboratory in the presence of representative(s) of the dealer.  

The relevant extract of clause (D) of para 2.5 reads as under:

“In  case  of  sample  failure,  in  the  event  of  request  for  testing by the dealer, the same to be considered on merits  by the State Office/Regional/Zonal General Manager of the  concerned Oil Company.  If approved by GM, the sample of  retail outlet retained by the dealer alongwith the counter  sample retained with the Field Officer/Oil Company are to  be tested as per the guidelines, preferably in presence of  the  Field  Officer,  RO  dealer/representative  and  representative of QC department of the Oil Company after  due verification of samples.”

10) It  is  rightly  pointed  out  that  the  samples  were  not  

tested in any government laboratory and these tests were  

conducted in the company’s laboratory itself.  Therefore, in  

order  to  satisfy  the  conscience  of  the  dealer  about  the  

authenticity  of  the  tests  so  conducted,  it  has  been  

contemplated in the Guidelines that on the request of the  

dealer, the test(s) could be conducted in his presence.  In  

Hindustan Petroleum Corporation Ltd. & Ors. vs.  M/s  

Super Highway Services & Anr., (2010) 3 SCC 321, this  

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Court  held  that  the  Guidelines  being  followed  by  the  

Corporation  require  that  the  dealer  should  be  given  prior  

notice regarding the test  so  that  he or  his  representative  

also can be present when the test is conducted.  The said  

requirement is in accordance with the principles of natural  

justice and the need for fairness in the matter of terminating  

the dealership agreement and it cannot be made an empty  

formality.  Notice should be served on the dealer sufficiently  

early so as to give him adequate time and opportunity to  

arrange for his presence during the test and there should be  

admissible evidence for such service of notice on the dealer.  

Strict  adherence to the above requirement is  essential,  in  

view of the possibility of manipulation in the conduct of the  

test, if it is conducted behind the back of the dealer.   It was  

further held that the cancellation of dealership agreement of  

a party is a serious business and cannot be taken lightly.  As  

pointed out in the said decision, in order to justify the action  

taken  to  terminate  such  an  agreement,  the  authority  

concerned has to act fairly and in complete adherence to the  

rules/guidelines framed for the said purpose.   

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11) It is further seen that after sealing of the petrol pump in  

the  night  of  22.08.2005  by  respondent  No.6  herein,  the  

respondent-dealer waited for the result but no copy of the  

same was given to them.  Since the dealer suspected some  

foul game on the part of the said officer, they filed Civil Suit  

being O.S.  No.  695 of 2005 before the Civil  Judge (Senior  

Division),  Saharanpur  seeking  injunction  against  the  

interference with the sale and supply of petroleum products.  

It is brought to our notice that immediately upon filing of the  

said suit, on 31.08.2005, the BPCL supplied one copy of the  

report alleging it to be of the samples collected from the RO.  

The  respondent-Firm  did  not  believe  the  said  report  and  

requested for fresh sampling of products and examination by  

some independent laboratory.  As the respondent-Firm did  

not  get  any  response,  they  filed  an  application  in  the  

pending suit  seeking collection of  fresh samples  from the  

sealed tanks in the presence of Court Commissioner and its  

examination by an independent agency.   

12) In this regard, it is relevant to refer Section 20 of the  

Petroleum Act, 1934 which reads as under:

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“20.  Right  to  require  re-test  –  (1)  The  owner  of  any  petroleum, or his agent, who is dissatisfied with the result  of the test of the petroleum may, within seven days from  the date on which he received intimation of the result of  the test, apply to the officer empowered under Section 14  to have fresh samples of the petroleum taken and tested.

(2) On  such  application  and  on  payment  of  the  prescribed  fee,  fresh  samples  of  the  petroleum shall  be  taken in the presence of such owner or agent or person  deputed by him,  and shall  be tested in  the presence of  such owner or agent or person deputed by him.

(3) If  on such re-test,  it  appears  that  the original  test  was erroneous the testing officer shall cancel the original  certificate granted under Section 19, shall make out a fresh  certificate, and shall furnish the owner of the petroleum, or  his agent, with a certified copy thereof, free of charge.”

13) Though  the  appellant-BPCL  protested  the  said  

application  contending  that  the  said  provision  in  the  

Petroleum  Act,1934  is  not  applicable  and  the  very  same  

objection  was  raised  by  learned  senior  counsel  for  the  

appellant before us, it is relevant to quote clause 10(k) of  

the Dealership Agreement with which the parties are bound  

is as under:

“10(k) -  To abide by the Petroleum Act, 1934 and the  rules framed hereunder for the time being in force as also  in other laws, rules or regulations either of the Government  or any local body as may be in force.”

In  view  of  the  Dealership  Agreement,  particularly,  clause  

10(k)  referred  above,  the  contention  of  learned  senior  

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counsel for the BPCL is liable to be rejected.  In terms of  

Section  20  of  the  Petroleum  Act,  1934  the  contesting  

respondents had a right to have fresh samples drawn and  

get the same re-tested within seven days of intimation of the  

test results.  It is the assertion of the contesting respondents  

that the test reports were intimated to them only upon filing  

of  a  suit  before  the  trial  Court.   After  getting  the  above  

reports, on 02.09.2005, the contesting respondents moved  

an application before the trial Court in the said suit for fresh  

sampling/retest of the products.  Though an objection was  

raised for filing counter statement in the said application, it  

is brought to our notice that in spite of several opportunities  

given by the Court, no such objection was ever filed.  It was  

further  pointed  out  by  learned counsel  for  the  contesting  

respondents that they timely exercised their right available  

in  law.   In  view of  the application filed by the contesting  

respondents on 02.09.2005 and in the light of Section 20 of  

the Petroleum Act,1934 as well as the terms of Dealership  

Agreement,  the objection raised by learned senior counsel  

for the BPCL is liable to be rejected.

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14) It is also pointed out that it was respondent No.6 herein  

who  made  the  inspection,  collected  the  samples,  issued  

show cause notice and passed an order of cancellation of the  

Dealership Agreement/Licence.  By impleading him as one of  

the  respondents  -  respondent  No.4  in  the  High  Court  –  

specific  allegations  were  made against  him that  he acted  

mala  fidely in  cancelling  the  same  and  those  assertions  

cannot be lightly ignored.

15) The High Court, after considering all the above specific  

claims of the contesting respondents, rightly interfered with  

the order of termination of the dealership agreement/licence  

dated 18.01.2006 and quashed the same.  We are in entire  

agreement with the said conclusion.  In view of the same,  

the  appellants  are  directed  to  implement  the  directions  

given by the High Court in the impugned judgment dated  

09.10.2009 within a period of four weeks from the date of  

receipt of this judgment.   

16) In the light of the above discussion, the civil  appeals  

are dismissed with no order as to costs.

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...…………….…………………………J.              (P. SATHASIVAM)                                  

 .….....…………………………………J.      (M.Y. EQBAL)                              

NEW DELHI; APRIL 12, 2013.  

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