4 August 2020


Supreme Court

Indian Oil Corporation Ltd. and Ors. Vs. R.M. Service Centre and Ors.




Stock variation beyond permissible limits is a critical irregularity entails termination of dealership

The challenge in the present appeal is to an order of the Division Bench of the Gauhati High Court passed in writ appeal maintaining an order of the Single Bench of the High Court whereby termination of dealership of Respondent No. 1 for violation of Marketing Discipline Guidelines, 2012 was set aside.

The dealer was granted retail dealership for sale of motor spirit (petrol), High Speed Diesel, motor oil and grease as a physical disabled person on a depot located at Ghograpar, National Highway -31 in the District of Nalbari, Assam. The sale and supply from the retail outlet of the dealer was suspended by the Appellants on 6th May, 2013 when it was found, on the joint inspection, variation of stock of High Speed Diesel beyond permissible limit; density of Tank No. 2 was not available and that tanker truck retention of the corresponding tank was not available at the time of inspection. On the basis of the test reports, the dealership was terminated after serving another show cause notice wherein, it has been stated that deviation was observed during inspection pertaining to stock variation and non-availability of reference density.

The dealer challenged the termination of the dealership before the Gauhati High Court. The learned Single Judge allowed the writ petition holding that, as per the Guidelines, the samples were required to reach the Laboratory preferably within ten days whereas, the first sample was tested on 29th May, 2013 that is after ten days and the umpire sample given to the dealer was tested on 19th August, 2013. It was held that, there is non-compliance of the time line fixed. The learned Single Judge also found that, the stock variation is not a critical irregularity within the meaning of Clause 8.2 of the Guidelines and cannot entail termination of dealership. The Division Bench of the High Court, in appeal, agreed with the finding recorded by the learned Single Bench.

There was variation in stock beyond permissible limits. In case of positive stock variation beyond permissible limits and on account of failure of sample, action in line with that of adulteration is to be initiated. The adulteration in these circumstances is a critical irregularity falling in Clause 8.2 of the Guidelines and the action required to be taken is termination of the dealership. However, in case of stock variation beyond permissible limits and the sample passing the quality test, it leads to suspension of sale and supply for fifteen days in the first instance, suspension of sale and supply for thirty days in the second instance and termination of dealership in the third instance. In this case, since the stock variation was beyond permissible limits and the sample failed, therefore, the action was rightly taken under Clause 5.1.11 of the Guidelines which is a critical irregularity when read with Sub-clause (i) of Clause 8.2 and Sub-clause (iv) of Clause 8.3 of the Guidelines.

In the present case, after failure of the first sample in the test report dated 29th May, 2013, the dealer was informed, who opted for testing of umpire sample in his possession. The said sample along with the sample in possession of the Field Survey Officer was sent for testing and in the report dated 19th August, 2013, the sample was found to have the same deviations. The dealer was informed of the result of the second test and was also given a show cause notice as to why the dealership should not be terminated. Therefore, the action taken against the dealer is in terms of the Guidelines, as a consequence of contractual obligations by the dealer.

Consequently, order passed by the High Court is not legal and sustainable and, thus, the same is set aside. The writ petition is dismissed and the termination of dealership is held to be valid and legal. Civil Appeal is allowed.

Tags : Stock variation Dealership Termination

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