We agree with the contentions advanced by
Mr. Sibal that condition no.8 of the letter of
allotment is unconscionable as it gives IOCL an
unfettered right to terminate the distributorship
without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength
and has no bargaining power with IOCL. At the time
when the letter of allotment was issued, respondent
no.2 had no other means of livelihood and was
dependent on the grant of Indane Gas agency by IOCL
for sustenance of himself and family members. The
letter of allotment contains standard terms and
respondent nos. 2 and 3 had no opportunity to vary
the same. Condition no.8 of letter of allotment
provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India as well as observations made by
this court in Central Inland Water Corporation
Limited’s case (supra). The relevant paragraph cited
by the learned senior counsel is reproduced
hereunder:
“89. Should then our courts not advance with
the times? Should they still continue to cling
to outmoded concepts and outworn ideologies?
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 19th 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 underfoot 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 Article 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 the 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. 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 infrastructural
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 be enumerated nor fully illustrated.
The court must judge each case on its own facts
and circumstances.”
31. Further, it has been rightly contended by the
learned senior counsel Mr. Sibal by placing reliance
upon Mahabir Auto Stores’s case (supra) that IOCL
being a Government of India Undertaking is bound to
act fairly, reasonably and its conduct is subject to
scrutiny on the touchstone of Article 14 of the
Constitution of India.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7266 OF 2009
INDIAN OIL CORPORATION LTD
V
NILOUFER SIDDIQUI & ORS
Dated:December 1, 2015
Citation:(2015) 16 SCC125
This Civil Appeal is directed against the
impugned judgment and order dated 03.07.2007 passed
by the High Court of Judicature at Patna in Second
Appeal No. 516 of 1988 whereby it has set aside the
impugned judgment and orders therein passed by the
courts below on the ground that both the courts below
not only committed error of record by misconstruing
the facts and evidence on record but also ignored the
specific provisions of law as well as the necessary
and relevant case laws and also wrongly held that the
Title Suit No. 68 of 1978 was barred by the
principles of res judicata.
2. The facts which are required to appreciate the
rival legal contentions urged on behalf of the
parties are stated in brief hereunder:
The appellant-Indian Oil Corporation Limited
(for short “IOCL”) in the year 1971 invited
applications from eligible persons under the scheme
for awarding the distributorship of Indane Gas (LPG)
Agencies in the town of Muzaffarpur, Bihar. The said
distributorship was reserved for ex-defence
personnel, war-widows and dependants. The respondent
no.2- Ex-Captain A.S. Siddiqui and respondent no.3-
Ex-Captain Jai Narain Prasad Nishad applied for the
said distributorship and got it. On 15.10.1971 IOCL
offered the said distributorship to respondent nos. 2
and 3 along with a third person provided they agreed
to enter into a partnership to run the business of
distribution of Indane Gas. This was done with a view
to rehabilitate more ex-servicemen in the country.
However, the third person refused to formPage 3
3
partnership.
3. The IOCL through its letter no.
Sales/LPG/ERN/3623 dated 21.10.1971 (hereinafter
referred to as “letter of allotment”) allotted
distributorship of Indane Gas to respondent nos.2 and
3 subject to the terms and conditions mentioned
therein. Condition no.2 of the said letter is stated
hereunder:
“Condition no.2: This appointment is subject to the
conditions contained in our standard
agreement which will be sent to you in due
course for your signature and you shall sign
and return the same to us.”
Further condition no.8 of the said letter reads thus:
“TERMINATION:
Condition no.8: Notwithstanding anything contained
herein, the Corporation shall be at liberty to
terminate your distributorship without assigning
any reason whatsoever by giving you 30 days
notice in writing of intention to do so and upon
the expiry of the said notice your
distributorship shall stand cancelled and
terminated without prejudice to the rights of
the Corporation in respect of any matter or
thing antecedent to such termination.”
4. On 17.11.1971 the partnership deed was signed
between respondent nos.2 and 3 to carry on the
business of distribution of Indane Gas at MuzzafarpurPage 4
4
under the name and style of M/s Happy Homes
(respondent no.4) on various terms and conditions.
Condition no.12 of the said partnership deed reads
thus:
“12.No partner shall without the consent of the
other partner obtained in writing for the
purpose of any of the following acts:-
a. Engage while he is a partner or be directly
or indirectly concerned, in may business
other, than that of and competing with the
business of the firm.
XXX XXX XXX
h. Assign or mortgage his share in the
partnership or attempt to introduce and
consider as partner…”
5. The respondent no.2 through letter no.59582
dated 04.11.1971 requested the IOCL for supply of the
copy of the standard agreement as referred to in
condition no.2 of the letter of allotment issued by
IOCL. IOCL vide letter dated 12.11.1971 had given an
assurance to them to send the said agreement in due
course. The respondent no.2 through letter dated
16.12.1971 again requested for a copy of the said
standard agreement from IOCL. IOCL vide letter no.
3622 dated 31.12.1971 allayed apprehension of both
respondent nos.2 and 3 on the score of non-Page 5
5
availability of the said standard agreement and the
termination of distributorship. The relevant part of
the said letter no. 3622 reads thus:
“…This agreement will be given to you in due
course. There is absolutely no secrecy
maintained about anything and the agreement as
and when ready, would be sent to you…
xx xx xx
Please in the meantime, we would like you to
progress fast regarding commissioning the
market…”
6. From 23.03.1972 the partnership firm-M/s Happy
Homes started the business of distribution of Indane
Gas without the said standard agreement by both the
respondent nos. 2 and 3. The distributorship
continued to be regulated by the terms of the letter
of allotment issued by IOCL to them.
7. The business of the partnership firm went on
smoothly for some time. After few months differences
arose between the partners i.e., respondent nos. 2
and 3 due to certain irregularities committed by
respondent no.3. The interference of IOCL was sought
by respondent no. 2 for the settlement of the said
dispute. However, IOCL refused to interfere and askedPage 6
6
the partners to settle their dispute themselves. On
27.02.1973 the respondent no. 2 wrote a letter to
Directorate General of Resettlement, Ministry of
Defence (for short “DGR”) with a copy of the same to
the Minister of Defence and the Minister of Petroleum
requesting either to split the partnership business
into two or to permit him to transfer his share in
the partnership in the name of his wife Mrs. Niloufer
Siddiqui (respondent no.1) or his father Ex-Captain
M. Ozair or the widow of Late Captain M. Ammar in
whose partnership he had actually applied for the
distributorship.
8. On 31.10.1973 both respondent nos.2 and 3 went
to Calcutta to meet the Branch Manager, IOCL. The
respondent no.2 expressed his desire to transfer his
share in the partnership in the name of either his
wife or his father. The respondent no.3 gave oral
consent to the desire expressed by respondent no.2.
Later, the respondent no.3 confirmed his oral consent
by writing a letter dated 15.11.1973 addressed to the
Branch Manager, IOCL.
9. The respondent no.2 through letter datedPage 7
7
17.11.1973 addressed to the Branch Manager, IOCL
sought IOCL’s permission to transfer his share in the
partnership in the name of either his wife or his
father. On 02.1.1974, the respondent no.2 joined
Bihar Government Services as Deputy Superintendent of
Police.
10. IOCL vide letter dated 25.02.1974 refused to
accede to the request for transfer of shares made by
respondent no.2 and stated thus:
“…you may recall that during the discussions you
had with the undersigned as well as our Branch
Sales Manager Sri SC Ghosh alongwith your
partner, it was clearly advised that unless all
the set backs/irregularities under which the
distributorship is being operated are set aside,
we shall not be forwarding any such request.”
11. Thereafter, the respondent no.2 again wrote a
letter on 03.3.1975 to the DGR along with a copy of
it to IOCL with same request but, DGR vide letter
dated 27.3.1975 refused to accede to the request made
by the respondent no.2. The same request was also
refused by IOCL vide letter dated 17.4.1975.
12. By a notice published in the daily newspaper
‘Indian Nation’ the respondent no.2 indicated hisPage 8
8
intention to transfer his share in M/s Happy Homes in
favour of his wife i.e., respondent no.1 and invited
objections to the same, if any. The IOCL vide its
letter No. Sales/LPG/3710 dated 16.01.1978 terminated
the distributorship. The relevant portions of the
said letter are extracted as under:
“It was clearly understood that you will not
take up any other business or employment during
the continuation of the aforesaid
distributorship vide his letter of November,
1973 and September, 1975 Capt. Siddiqui has
approached us for our permission to his
transferring his share in the aforesaid
Distributorship to his father which was not
acceded to and he was advised to choose one or
the two i.e., either to keep his job or remain
our distributor. In addition it was also made
clear to you by us and also the Directorate
General of Resettlement that he cannot be
allowed to transfer his share to his father. But
he has persisted with the breach and violation
of this agreement and did not resign from the
job.
xx xx xx
In view of the foregoing it has been decided to
terminate your distributorship and this letter
may be treated as our notice for this purpose.
Please note that your distributorship rights
shall stand terminated and cancelled on expiry
of the period of 30 days without prejudice to
the rights of the corporation in respect of any
matter or thing antecedent to such termination.”
13. On 23.1.1978, the respondent no.2 executed a
deed of transfer (Baimokasa) in favour of his wifePage 9
9
i.e., respondent no.1 whereby he transferred his
share in the partnership in the name of his wife.
14. On 9.6.1978, the respondent no.1 instituted a
Title Suit no. 68 of 1978 in the court of Executive
Munsif, Muzaffarpur seeking declaration that
termination of the distributorship by IOCL vide
letter dated 16.01.1978 was illegal, arbitrary and
unjustified. The respondent no.1 also prayed for
restoration of the distributorship. The trial court
vide its judgment and order dated 11.04.1985
dismissed the said suit holding, inter alia, that
respondent no.2 had no right to transfer his share in
the partnership in the name of his wife i.e.,
respondent no.1.
15. Aggrieved by the decision of the trial court,
the respondent no.1 preferred Title Appeal no. 32 of
1986 in the court of Additional District Judge,
Muzaffarpur. The first appellate court vide its
judgment and order dated 13.06.1988 dismissed the
appeal and upheld the decision of the trial court.
16. Aggrieved by the decision of the first appellatePage 10
10
court, the respondent no.1 preferred Second Appeal
no. 516 of 1988 in the High Court of Judicature at
Patna by framing certain substantial questions of law
and urged various tenable grounds in support of the
same. The High Court vide its judgment and order
dated 03.07.2007 allowed the appeal by setting aside
the judgments and orders passed by the courts below.
It declared that the letter of termination dated
16.01.1978 issued by IOCL in terminating
distributorship of respondent no.2 to be illegal,
arbitrary and unjustified and gave direction for
restoration of the distributorship. Hence, this
appeal is filed by the appellant questioning the
correctness of the impugned judgment and order by
framing certain questions of law.
17. We have carefully heard Ms. Pinky Anand, the
learned Additional Solicitor General on behalf of
appellant-IOCL and Mr. Kapil Sibal, the learned
senior counsel on behalf of respondent nos. 1, 2& 4.
On the basis of factual evidence on record produced
before us, the circumstances of the case and also in
the light of the rival legal contentions urged by thePage 11
11
learned senior counsel on behalf of both the parties,
we have broadly framed the following points which
require our attention and considerationi.
Whether IOCL had the right to terminate
the distributorship of respondent nos. 2
and 3?
ii. Whether the provision of Section 14(1)(c)
of the Specific Relief Act, 1963 is
applicable in the instant case?
iii. What order?
Answer to Point No.1
18. Ms. Pinky Anand, the learned Additional
Solicitor General on behalf of the appellant-IOCL
contended that IOCL had the right to terminate the
distributorship without assigning any reason. She
submitted that the High Court has incorrectly held
that IOCL violated Condition no.8 (supra) of the
terms and conditions as mentioned in the letter of
allotment dated 21.10.1971 by terminating the
distributorship without giving 30 days notice toPage 12
12
respondent no.2 which was a pre-requisite condition.
She further submitted that the said 30 days notice as
required under condition no.8 was given in the notice
of termination itself. She placed reliance upon the
decision of this Court in the case of Her Highness
Maharani Shanti Devi P. Gaikwad V. Savjibhai
Haribhai Patel & ors1. The relevant portion of the
judgment cited by her reads thus:
54..“5.… it is the court’s duty to give effect
to the bargain of the parties according to their
intention and when that bargain is in writing
the intention is to be looked for in the words
used unless they are such that one may suspect
that they do not convey the intention correctly.
If those words are clear, there is very little
that the court has to do. The court must give
effect to the plain meaning of the words however
it may dislike the result. We have earlier set
out clause 10 and we find no difficulty or doubt
as to the meaning of the language there used.
Indeed the language is the plainest…”
Thus, the termination of the distributorship of the
Indane Gas of respondent no.2 was legal, proper and
justified according to the terms and conditions in
the letter of allotment issued by IOCL which the High
Court had failed to consider and appreciate the same
while recording its findings and answering the said
substantial question of law.
1
(2001) 5 SCC 101Page 13
13
19. It was further contended by her that the High
Court has erred in coming to the conclusion that
respondent nos. 2 and 3 have not committed any breach
of the terms and conditions of the standard agreement
on the ground that the same was never supplied to
them. The finding of the High Court on this point is
not only bad in law but also factually wrong. She
submitted that the evidence on record clearly shows
that respondent nos. 2 and 3 were shown the terms of
the standard agreement and were specifically made
aware of clause 21 which prohibited the partners from
assigning their shares in favour of outsiders without
the consent of IOCL. The fact that respondent no.2
repeatedly sought permission from IOCL for assigning
his share to his wife clearly shows that he was aware
of such a condition in the agreement. Clause 21 of
the standard agreement reads thus:
“21. The distributor shall not sell, assign,
mortgage or part with or otherwise transfer his
interest in the distributorship or the right,
interest or benefit conferred on him by this
agreement to any person. In the event of the
Distributor being a partnership firm any change
in constitution of the firm, whether by
retirement, introduction of new partners or
otherwise howsoever will not be permitted
without the previous written approval of thePage 14
14
Corporation notwithstanding that the Corporation
may have dealings with such reconstituted firm
or impliedly waived or condoned the breach or
default mentioned hereinabove by the
Distributor…”
20. She further submitted that the validity of
termination of distributorship has to be tested on
the principles of private law and the law of contract
and not on the touchstone of constitutional or public
law. In the present case the question involved is
purely a question of breach of contract alone between
the parties for which the respondent no.1 & 2 at best
if they prove the breach on the part of the appellant
they are entitled for damages but not declaratory
remedy and consequential relief as prayed in the
plaint.
21. Per contra, Mr. Kapil Sibal, the learned senior
counsel on behalf of respondent nos.1, 2 & 4 sought
to justify the impugned judgment and order passed by
the High Court by urging various factual as well as
legal contentions in justification of the impugned
judgment.
22. It was further contended by him that both thePage 15
15
respondent nos. 2 and 3 have fulfilled all the terms
and conditions of the letter of allotment of
distributorship which was given to them by IOCL. It
is IOCL which has violated the said terms and
conditions by not sending a copy of the standard
agreement despite repeated demands made by respondent
no.2 to IOCL. Both the respondent nos. 2 and 3
started their business on 23.03.1972 on the basis of
the letter of allotment. At no point of time they
were made acquainted with the terms and conditions of
the standard agreement by IOCL. He further submitted
that the agreement which is not executed by the
parties cannot be legally made enforceable against
them. Therefore, the terms and conditions of the
standard agreement cannot be made binding upon them
as they have not executed the same. Thus, the
termination of the distributorship of Indane Gas as
per the terms and conditions enumerated in the said
standard agreement is illegal as has been rightly
held by the High Court in its reasoned judgment by
answering the substantial question of law in favour
of respondent no.1 & 2.
Page 16
16
23. It was further contended by him that as per
condition no.8 of the letter of allotment IOCL
reserved the right to terminate the distributorship
without assigning any reason by giving 30 days notice
in writing. The purpose of the said 30 days notice
was to afford time to both the respondent nos. 2 and
3 to advance their explanation against such intended
termination made by the IOCL by invoking its right
under condition no.8. He further submitted that IOCL
itself has completely violated the terms enumerated
in condition no.8 of letter of allotment. It has
arbitrarily terminated the distributorship by issuing
a letter without giving any notice to them by giving
irrelevant reasons which is in violation of the
principles of natural justice as well. In his further
submissions he assailed the condition no.8 of the
letter of allotment itself. He submitted that the
said condition is unconscionable in so far as it gave
IOCL an unfettered right to terminate the
distributorship of Indane Gas in favour of both the
respondent nos. 2 & 3 without assigning any reason
whatsoever. He fortified his submission by placing
strong reliance upon the decision of this Court inPage 17
17
Central Inland Water Transport Corporation Limited &
Anr. V. Brojo Nath Ganguly & Anr.2 which has been
followed by the Constitution Bench of this Court in
the case of Delhi Transport Corporation v. DTC
Mazdoor Congress and Others.
3 The relevant paragraph
from Central Inland Water Transport’s case (supra)
cited by the learned senior counsel is extracted in
the later part of this judgment.
24. It was further contended by him that IOCL, being
a Government of India Undertaking is bound to act
fairly and its conduct is subject to scrutiny on the
touchstone of Article 14 of the Constitution of
India. He further submitted that it is clear from the
evidence on record that the action of IOCL was high
handed and arbitrary. He placed strong reliance upon
the decision of this Court in the case of Mahabir
Auto Stores and Ors v. Indian Oil Corporation & Ors.
4
Paragraph 12 of the aforesaid case reads thus:
“12. It is well settled that every action of
the State or an instrumentality of the State in
exercise of its executive power, must be
informed by reason. In appropriate cases,
actions uninformed by reason may be questioned
2
(1986) 3 SCC 156
3 1991 Supp (1) SCC 600
4
(1990) 3 SCC 752Page 18
18
as arbitrary in proceedings under Article 226
or Article 32 of the Constitution. Reliance in
this connection may be placed on the
observations of this Court in Radha Krishna
Agarwal v. State of Bihar. It appears to us, at
the outset, that in the facts and circumstances
of the case, the respondent company IOC is an
organ of the State or an instrumentality of the
State as contemplated under Article 12 of the
Constitution. The State acts in its executive
power under Article 298 of the Constitution in
entering or not entering in contracts with
individual parties. Article 14 of the
Constitution would be applicable to those
exercises of power. Therefore, the action of
State organ under Article 14 can be checked.
See Radha Krishna Agarwal v. State of Bihar at
p. 462, but Article 14 of the Constitution
cannot and has not been construed as a charter
for judicial review of State action after the
contract has been entered into, to call upon
the State to account for its actions in its
manifold activities by stating reasons for such
actions. In a situation of this nature certain
activities of the respondent company which
constituted State under Article 12 of the
Constitution may be in certain circumstances
subject to Article 14 of the Constitution in
entering or not entering into contracts and
must be reasonable and taken only upon lawful
and relevant consideration; it depends upon
facts and circumstances of a particular
transaction whether hearing is necessary and
reasons have to be stated. In case any right
conferred on the citizens which is sought to be
interfered, such action is subject to Article
14 of the Constitution, and must be reasonable
and can be taken only upon lawful and relevant
grounds of public interest. Where there is
arbitrariness in State action of this type of
entering or not entering into contracts,
Article 14 springs up and judicial review
strikes such an action down. Every action of
the State executive authority must be subject
to rule of law and must be informed by reason.Page 19
19
So, whatever be the activity of the public
authority, in such monopoly or semi-monopoly
dealings, it should meet the test of Article 14
of the Constitution. If a governmental action
even in the matters of entering or not entering
into contracts, fails to satisfy the test of
reasonableness, the same would be unreasonable.
In this connection reference may be made to
E.P. Royappa v. State of Tamil Nadu, Maneka
Gandhi v. Union of India, Ajay Hasia v. Khalid
Mujib Sehravardi, R.D. Shetty v. International
Airport Authority of India and also Dwarkadas
Marfatia and Sons v. Board of Trustees of the
Port of Bombay. It appears to us that rule of
reason and rule against arbitrariness and
discrimination, rules of fair play and natural
justice are part of the rule of law applicable
in situation or action by State instrumentality
in dealing with citizens in a situation like
the present one. Even though the rights of the
citizens are in the nature of contractual
rights, the manner, the method and motive of a
decision of entering or not entering into a
contract, are subject to judicial review on the
touchstone of relevance and reasonableness,
fair play, natural justice, equality and nondiscrimination
in the type of the transactions
and nature of the dealing as in the present
case.”
25. Mr. V.K. Monga, the learned counsel on behalf
of respondent no.3 in his contentions supported the
arguments advanced by Ms. Pinky Anand, the learned
ASG on behalf of appellant-IOCL.
26. After careful considerations of the findings of
the High Court both on fact and law and considering
the rival legal submissions made on behalf of thePage 20
20
parties, we agree with the arguments advanced by Mr.
Kapil Sibal. We have examined the material on record
and on the basis of the admitted facts, it is clear
that there is no dispute that the appellant-IOCL
offered distributorship of Indane Gas (LPG) to
respondent nos.2 and 3 vide its letter of allotment
dated 21.10.1971 on certain terms and conditions.
It is also an admitted fact that both
respondent nos. 2 and 3 got the partnership firm
registered as per the terms and conditions of letter
of allotment and at least twice requested IOCL to
send the Company’s standard agreement for signature,
but IOCL failed to send it to them. Hence, it can be
inferred from the pleadings and evidence on record
that the Company’s standard agreement was never
executed by them.
27. On 23.03.1972 both the respondent nos. 2 and 3
started their business without the said standard
agreement being signed by both of them. The
partnership business continued to be regulated by the
terms and conditions of the letter of allotment
issued by IOCL. Hence, the claim of IOCL that bothPage 21
21
the respondent nos. 2 and 3 were aware of the said
standard agreement is unsusceptible in law. There is
nothing on record to show that both the respondent
nos. 2 and 3 had any knowledge or had ever agreed to
the terms of the said standard agreement. We agree
with the submission made by Mr. Sibal that the
agreement which is not executed by the parties cannot
be legally made enforceable against them. Therefore,
the High Court has rightly held that the standard
agreement cannot be said to be legally binding upon
the respondent nos. 2 and 3 as the same has never
been executed between the allottes and IOCL.
28. Further, Section 7 of the Indian Contract Act
1872, specifically provides that acceptance must be
absolute. It reads thus:
“In order to convert a proposal into a promise
the acceptance must –
(1)be absolute and unqualified.
(2)be expressed in some usual and reasonable
manner, unless the proposal prescribes the
manner in which it is to be accepted. If the
proposal prescribes a manner in which it is to
be accepted; and the acceptance is not made in
such manner, the proposer may, within a
reasonable time after the acceptance is
communicated to him, insist that his proposal
shall be accepted in the prescribed manner,Page 22
22
and not otherwise; but; if he fails to do so,
he accepts the acceptance.”
It is clear from the pleadings and evidence on record
that the standard agreement was never supplied to
both the respondent nos. 2 and 3 and the said
standard agreement cannot be said to be executed
between the allottes and IOCL. Thus, as per the facts
and circumstances of the case and also in the light
of the aforesaid statutory provision of the Contract
Act, the said standard agreement in question cannot
be said to be a concluded contract between the
parties in law. Consequently, it cannot be made
binding upon the allottes of distributorship by IOCL.
29. As far as the alleged violation of clause 21
(supra) of the standard agreement by respondent nos.
2 and 3 is concerned, it is clear that the said
standard agreement is not binding upon the parties
for the reasons stated supra and when the said
standard agreement is not binding, then the question
of violation of terms and conditions does not arise.
Rather IOCL has violated condition no.2 (supra) of
the letter of allotment by not sending the standardPage 23
23
agreement to both the respondent nos. 2 and 3.
30. We agree with the contentions advanced by
Mr. Sibal that condition no.8 of the letter of
allotment is unconscionable as it gives IOCL an
unfettered right to terminate the distributorship
without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength
and has no bargaining power with IOCL. At the time
when the letter of allotment was issued, respondent
no.2 had no other means of livelihood and was
dependent on the grant of Indane Gas agency by IOCL
for sustenance of himself and family members. The
letter of allotment contains standard terms and
respondent nos. 2 and 3 had no opportunity to vary
the same. Condition no.8 of letter of allotment
provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India as well as observations made by
this court in Central Inland Water Corporation
Limited’s case (supra). The relevant paragraph cited
by the learned senior counsel is reproduced
hereunder:
“89. Should then our courts not advance with
the times? Should they still continue to cling
to outmoded concepts and outworn ideologies?
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 19th 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 underfoot 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 Article 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 the 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. 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 infrastructural
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 be enumerated nor fully illustrated.
The court must judge each case on its own facts
and circumstances.”
31. Further, it has been rightly contended by the
learned senior counsel Mr. Sibal by placing reliance
upon Mahabir Auto Stores’s case (supra) that IOCL
being a Government of India Undertaking is bound to
act fairly, reasonably and its conduct is subject to
scrutiny on the touchstone of Article 14 of the
Constitution of India.
Answer to Point No.2
32. Ms. Pinky Anand, the learned Additional
Solicitor General on behalf of the appellant-IOCL
contended that the High Court has erred in granting
the relief of restoration of distributorship as the
same is contrary to the provision of Section 14(1)(c)
of the Specific Relief Act, 1963 (for short “the
Act”). She further contended that the agreement in
the instant case is determinable in nature and as per
the provision of Section 14 (1)(c) of the Act, the
agreement which is determinable in nature cannot be
specifically enforced by the court. Thus, the High
Court has erroneously held that the provision of
Section 14(1)(c) of the Act is not applicable to the
facts situation of the case.
33. She further contended that the High Court has
wrongly directed IOCL to restore the terminated
distributorship as the same is bad in law. She
submitted that once a distributorship, even if it is
terminated in breach of the contract, cannot be
restored in favour of the respondent no. 2 and the
only remedy available is to claim damages from IOCL.
She placed strong reliance upon the judgment of this
Court in the case of Indian Oil Corporation Ltd. v.
Amritsar Gas Services & Ors.5.
34. On the other hand, Mr. Kapil Sibal, the learned
senior counsel contended that the question of
maintainability of suit under Section 14(1)(c) of the
Act was never raised by IOCL either before the trial
court or before the first appellate court. He further
submitted that it is apparent from the letter of
allotment and the conduct of the parties that neither
the contract was revocable nor it had become void for
any reason. Thus, the provision of Section 14(1)(c)
of the Act is not attracted in the instant case as
has been rightly held by the High Court.
35. He further contended that the Amritsar Gas
Services & Ors. case (supra) relied upon by IOCL in
its contentions has no relevance in the instant case
for the reason that the said case relates to the Law
of Arbitration. In the instant case, it is clear from
the letter of allotment that there was no arbitration
clause enumerated therein to attract the Law of
5
(1991) 1 SCC 533Page 28
28
Arbitration and related case laws.
36. We agree with the contentions advanced by the
Mr. Sibal. The High Court in the impugned judgment
and order has rightly held that the provision under
section 14(1)(c) of the Act is not applicable to the
facts and circumstances of the instant case. It held
thus:
“10.(iii) Furthermore, from the terms of
agreement, namely, the letter of allotment and
the conduct of the parties, it appears that
neither the contract was revocable nor it had
become void for any reason whatsoever. Hence,
provision of Section 14(1)(c) of the Specific
Relief Act is not applicable to the facts and
circumstances of the instant case and the suit
cannot be legally held to be maintainable
under the said provision…”
37. Furthermore, from a perusal of letter of
allotment, it is clear that there is no arbitration
clause therein. Thus, the case of Amritsar Gas
Services (supra) relied upon by IOCL in its
contentions is of no relevance.
Answer to Point No.3
38. For the reasons mentioned supra we are of the
view that no error has been committed by the High
Court in setting aside the erroneous findings of the
trial court as well as the first appellate court in
its judgments and orders.
39. The facts and circumstances of this case are
such that we are constrained to make observation that
the appellant-IOCL must be very cautious and careful
while exercising its power to terminate the
distributorship of this nature. For the aforesaid
reasons the appeal is liable to be dismissed.
40. On the issue of cost, we are of the opinion that
since the respondents have been litigating for a
period of around 37 years, spending precious time in
the courts of law seeking justice for themselves, they
are entitled thereto in the facts and circumstances of
the case. The respondent nos. 2 and 3 are exservicemen
in whose favour the distributorship was
awarded, the same was terminated arbitrarily and
unfairly. This conduct on the part of IOCL defeats the
laudable object of the scheme of the Government of
India by which distributorship was allotted in favour
of the ex-defence personnel, war-widows and
dependants. Thus, respondent nos. 1 & 2 deserve to be
awarded with costs.
41. Accordingly, we pass the following orderi)
This Civil Appeal is dismissed. The
order dated 13.12.2007 granting stay shall
stand vacated.
ii) We direct the appellant-IOCL to restore
the LPG distributorship in favour of
respondent nos. 1 or 2 and 3 forthwith and
submit a compliance report to this court.
iii) The cost of Rs. 1 lakh be paid to
respondent nos. 1 and 2 within four weeks
from the date of receipt of the copy of the
Judgment.
iv) All pending applications are disposed
of.
…………………………………………………………J.
[V.GOPALA GOWDA]
…………………………………………………………J.
[AMITAVA ROY]
New Delhi,
December 1, 2015
Mr. Sibal that condition no.8 of the letter of
allotment is unconscionable as it gives IOCL an
unfettered right to terminate the distributorship
without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength
and has no bargaining power with IOCL. At the time
when the letter of allotment was issued, respondent
no.2 had no other means of livelihood and was
dependent on the grant of Indane Gas agency by IOCL
for sustenance of himself and family members. The
letter of allotment contains standard terms and
respondent nos. 2 and 3 had no opportunity to vary
the same. Condition no.8 of letter of allotment
provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India as well as observations made by
this court in Central Inland Water Corporation
Limited’s case (supra). The relevant paragraph cited
by the learned senior counsel is reproduced
hereunder:
“89. Should then our courts not advance with
the times? Should they still continue to cling
to outmoded concepts and outworn ideologies?
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 19th 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 underfoot 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 Article 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 the 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. 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 infrastructural
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 be enumerated nor fully illustrated.
The court must judge each case on its own facts
and circumstances.”
31. Further, it has been rightly contended by the
learned senior counsel Mr. Sibal by placing reliance
upon Mahabir Auto Stores’s case (supra) that IOCL
being a Government of India Undertaking is bound to
act fairly, reasonably and its conduct is subject to
scrutiny on the touchstone of Article 14 of the
Constitution of India.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7266 OF 2009
INDIAN OIL CORPORATION LTD
V
NILOUFER SIDDIQUI & ORS
Dated:December 1, 2015
Citation:(2015) 16 SCC125
This Civil Appeal is directed against the
impugned judgment and order dated 03.07.2007 passed
by the High Court of Judicature at Patna in Second
Appeal No. 516 of 1988 whereby it has set aside the
impugned judgment and orders therein passed by the
courts below on the ground that both the courts below
not only committed error of record by misconstruing
the facts and evidence on record but also ignored the
specific provisions of law as well as the necessary
and relevant case laws and also wrongly held that the
Title Suit No. 68 of 1978 was barred by the
principles of res judicata.
2. The facts which are required to appreciate the
rival legal contentions urged on behalf of the
parties are stated in brief hereunder:
The appellant-Indian Oil Corporation Limited
(for short “IOCL”) in the year 1971 invited
applications from eligible persons under the scheme
for awarding the distributorship of Indane Gas (LPG)
Agencies in the town of Muzaffarpur, Bihar. The said
distributorship was reserved for ex-defence
personnel, war-widows and dependants. The respondent
no.2- Ex-Captain A.S. Siddiqui and respondent no.3-
Ex-Captain Jai Narain Prasad Nishad applied for the
said distributorship and got it. On 15.10.1971 IOCL
offered the said distributorship to respondent nos. 2
and 3 along with a third person provided they agreed
to enter into a partnership to run the business of
distribution of Indane Gas. This was done with a view
to rehabilitate more ex-servicemen in the country.
However, the third person refused to formPage 3
3
partnership.
3. The IOCL through its letter no.
Sales/LPG/ERN/3623 dated 21.10.1971 (hereinafter
referred to as “letter of allotment”) allotted
distributorship of Indane Gas to respondent nos.2 and
3 subject to the terms and conditions mentioned
therein. Condition no.2 of the said letter is stated
hereunder:
“Condition no.2: This appointment is subject to the
conditions contained in our standard
agreement which will be sent to you in due
course for your signature and you shall sign
and return the same to us.”
Further condition no.8 of the said letter reads thus:
“TERMINATION:
Condition no.8: Notwithstanding anything contained
herein, the Corporation shall be at liberty to
terminate your distributorship without assigning
any reason whatsoever by giving you 30 days
notice in writing of intention to do so and upon
the expiry of the said notice your
distributorship shall stand cancelled and
terminated without prejudice to the rights of
the Corporation in respect of any matter or
thing antecedent to such termination.”
4. On 17.11.1971 the partnership deed was signed
between respondent nos.2 and 3 to carry on the
business of distribution of Indane Gas at MuzzafarpurPage 4
4
under the name and style of M/s Happy Homes
(respondent no.4) on various terms and conditions.
Condition no.12 of the said partnership deed reads
thus:
“12.No partner shall without the consent of the
other partner obtained in writing for the
purpose of any of the following acts:-
a. Engage while he is a partner or be directly
or indirectly concerned, in may business
other, than that of and competing with the
business of the firm.
XXX XXX XXX
h. Assign or mortgage his share in the
partnership or attempt to introduce and
consider as partner…”
5. The respondent no.2 through letter no.59582
dated 04.11.1971 requested the IOCL for supply of the
copy of the standard agreement as referred to in
condition no.2 of the letter of allotment issued by
IOCL. IOCL vide letter dated 12.11.1971 had given an
assurance to them to send the said agreement in due
course. The respondent no.2 through letter dated
16.12.1971 again requested for a copy of the said
standard agreement from IOCL. IOCL vide letter no.
3622 dated 31.12.1971 allayed apprehension of both
respondent nos.2 and 3 on the score of non-Page 5
5
availability of the said standard agreement and the
termination of distributorship. The relevant part of
the said letter no. 3622 reads thus:
“…This agreement will be given to you in due
course. There is absolutely no secrecy
maintained about anything and the agreement as
and when ready, would be sent to you…
xx xx xx
Please in the meantime, we would like you to
progress fast regarding commissioning the
market…”
6. From 23.03.1972 the partnership firm-M/s Happy
Homes started the business of distribution of Indane
Gas without the said standard agreement by both the
respondent nos. 2 and 3. The distributorship
continued to be regulated by the terms of the letter
of allotment issued by IOCL to them.
7. The business of the partnership firm went on
smoothly for some time. After few months differences
arose between the partners i.e., respondent nos. 2
and 3 due to certain irregularities committed by
respondent no.3. The interference of IOCL was sought
by respondent no. 2 for the settlement of the said
dispute. However, IOCL refused to interfere and askedPage 6
6
the partners to settle their dispute themselves. On
27.02.1973 the respondent no. 2 wrote a letter to
Directorate General of Resettlement, Ministry of
Defence (for short “DGR”) with a copy of the same to
the Minister of Defence and the Minister of Petroleum
requesting either to split the partnership business
into two or to permit him to transfer his share in
the partnership in the name of his wife Mrs. Niloufer
Siddiqui (respondent no.1) or his father Ex-Captain
M. Ozair or the widow of Late Captain M. Ammar in
whose partnership he had actually applied for the
distributorship.
8. On 31.10.1973 both respondent nos.2 and 3 went
to Calcutta to meet the Branch Manager, IOCL. The
respondent no.2 expressed his desire to transfer his
share in the partnership in the name of either his
wife or his father. The respondent no.3 gave oral
consent to the desire expressed by respondent no.2.
Later, the respondent no.3 confirmed his oral consent
by writing a letter dated 15.11.1973 addressed to the
Branch Manager, IOCL.
9. The respondent no.2 through letter datedPage 7
7
17.11.1973 addressed to the Branch Manager, IOCL
sought IOCL’s permission to transfer his share in the
partnership in the name of either his wife or his
father. On 02.1.1974, the respondent no.2 joined
Bihar Government Services as Deputy Superintendent of
Police.
10. IOCL vide letter dated 25.02.1974 refused to
accede to the request for transfer of shares made by
respondent no.2 and stated thus:
“…you may recall that during the discussions you
had with the undersigned as well as our Branch
Sales Manager Sri SC Ghosh alongwith your
partner, it was clearly advised that unless all
the set backs/irregularities under which the
distributorship is being operated are set aside,
we shall not be forwarding any such request.”
11. Thereafter, the respondent no.2 again wrote a
letter on 03.3.1975 to the DGR along with a copy of
it to IOCL with same request but, DGR vide letter
dated 27.3.1975 refused to accede to the request made
by the respondent no.2. The same request was also
refused by IOCL vide letter dated 17.4.1975.
12. By a notice published in the daily newspaper
‘Indian Nation’ the respondent no.2 indicated hisPage 8
8
intention to transfer his share in M/s Happy Homes in
favour of his wife i.e., respondent no.1 and invited
objections to the same, if any. The IOCL vide its
letter No. Sales/LPG/3710 dated 16.01.1978 terminated
the distributorship. The relevant portions of the
said letter are extracted as under:
“It was clearly understood that you will not
take up any other business or employment during
the continuation of the aforesaid
distributorship vide his letter of November,
1973 and September, 1975 Capt. Siddiqui has
approached us for our permission to his
transferring his share in the aforesaid
Distributorship to his father which was not
acceded to and he was advised to choose one or
the two i.e., either to keep his job or remain
our distributor. In addition it was also made
clear to you by us and also the Directorate
General of Resettlement that he cannot be
allowed to transfer his share to his father. But
he has persisted with the breach and violation
of this agreement and did not resign from the
job.
xx xx xx
In view of the foregoing it has been decided to
terminate your distributorship and this letter
may be treated as our notice for this purpose.
Please note that your distributorship rights
shall stand terminated and cancelled on expiry
of the period of 30 days without prejudice to
the rights of the corporation in respect of any
matter or thing antecedent to such termination.”
13. On 23.1.1978, the respondent no.2 executed a
deed of transfer (Baimokasa) in favour of his wifePage 9
9
i.e., respondent no.1 whereby he transferred his
share in the partnership in the name of his wife.
14. On 9.6.1978, the respondent no.1 instituted a
Title Suit no. 68 of 1978 in the court of Executive
Munsif, Muzaffarpur seeking declaration that
termination of the distributorship by IOCL vide
letter dated 16.01.1978 was illegal, arbitrary and
unjustified. The respondent no.1 also prayed for
restoration of the distributorship. The trial court
vide its judgment and order dated 11.04.1985
dismissed the said suit holding, inter alia, that
respondent no.2 had no right to transfer his share in
the partnership in the name of his wife i.e.,
respondent no.1.
15. Aggrieved by the decision of the trial court,
the respondent no.1 preferred Title Appeal no. 32 of
1986 in the court of Additional District Judge,
Muzaffarpur. The first appellate court vide its
judgment and order dated 13.06.1988 dismissed the
appeal and upheld the decision of the trial court.
16. Aggrieved by the decision of the first appellatePage 10
10
court, the respondent no.1 preferred Second Appeal
no. 516 of 1988 in the High Court of Judicature at
Patna by framing certain substantial questions of law
and urged various tenable grounds in support of the
same. The High Court vide its judgment and order
dated 03.07.2007 allowed the appeal by setting aside
the judgments and orders passed by the courts below.
It declared that the letter of termination dated
16.01.1978 issued by IOCL in terminating
distributorship of respondent no.2 to be illegal,
arbitrary and unjustified and gave direction for
restoration of the distributorship. Hence, this
appeal is filed by the appellant questioning the
correctness of the impugned judgment and order by
framing certain questions of law.
17. We have carefully heard Ms. Pinky Anand, the
learned Additional Solicitor General on behalf of
appellant-IOCL and Mr. Kapil Sibal, the learned
senior counsel on behalf of respondent nos. 1, 2& 4.
On the basis of factual evidence on record produced
before us, the circumstances of the case and also in
the light of the rival legal contentions urged by thePage 11
11
learned senior counsel on behalf of both the parties,
we have broadly framed the following points which
require our attention and considerationi.
Whether IOCL had the right to terminate
the distributorship of respondent nos. 2
and 3?
ii. Whether the provision of Section 14(1)(c)
of the Specific Relief Act, 1963 is
applicable in the instant case?
iii. What order?
Answer to Point No.1
18. Ms. Pinky Anand, the learned Additional
Solicitor General on behalf of the appellant-IOCL
contended that IOCL had the right to terminate the
distributorship without assigning any reason. She
submitted that the High Court has incorrectly held
that IOCL violated Condition no.8 (supra) of the
terms and conditions as mentioned in the letter of
allotment dated 21.10.1971 by terminating the
distributorship without giving 30 days notice toPage 12
12
respondent no.2 which was a pre-requisite condition.
She further submitted that the said 30 days notice as
required under condition no.8 was given in the notice
of termination itself. She placed reliance upon the
decision of this Court in the case of Her Highness
Maharani Shanti Devi P. Gaikwad V. Savjibhai
Haribhai Patel & ors1. The relevant portion of the
judgment cited by her reads thus:
54..“5.… it is the court’s duty to give effect
to the bargain of the parties according to their
intention and when that bargain is in writing
the intention is to be looked for in the words
used unless they are such that one may suspect
that they do not convey the intention correctly.
If those words are clear, there is very little
that the court has to do. The court must give
effect to the plain meaning of the words however
it may dislike the result. We have earlier set
out clause 10 and we find no difficulty or doubt
as to the meaning of the language there used.
Indeed the language is the plainest…”
Thus, the termination of the distributorship of the
Indane Gas of respondent no.2 was legal, proper and
justified according to the terms and conditions in
the letter of allotment issued by IOCL which the High
Court had failed to consider and appreciate the same
while recording its findings and answering the said
substantial question of law.
1
(2001) 5 SCC 101Page 13
13
19. It was further contended by her that the High
Court has erred in coming to the conclusion that
respondent nos. 2 and 3 have not committed any breach
of the terms and conditions of the standard agreement
on the ground that the same was never supplied to
them. The finding of the High Court on this point is
not only bad in law but also factually wrong. She
submitted that the evidence on record clearly shows
that respondent nos. 2 and 3 were shown the terms of
the standard agreement and were specifically made
aware of clause 21 which prohibited the partners from
assigning their shares in favour of outsiders without
the consent of IOCL. The fact that respondent no.2
repeatedly sought permission from IOCL for assigning
his share to his wife clearly shows that he was aware
of such a condition in the agreement. Clause 21 of
the standard agreement reads thus:
“21. The distributor shall not sell, assign,
mortgage or part with or otherwise transfer his
interest in the distributorship or the right,
interest or benefit conferred on him by this
agreement to any person. In the event of the
Distributor being a partnership firm any change
in constitution of the firm, whether by
retirement, introduction of new partners or
otherwise howsoever will not be permitted
without the previous written approval of thePage 14
14
Corporation notwithstanding that the Corporation
may have dealings with such reconstituted firm
or impliedly waived or condoned the breach or
default mentioned hereinabove by the
Distributor…”
20. She further submitted that the validity of
termination of distributorship has to be tested on
the principles of private law and the law of contract
and not on the touchstone of constitutional or public
law. In the present case the question involved is
purely a question of breach of contract alone between
the parties for which the respondent no.1 & 2 at best
if they prove the breach on the part of the appellant
they are entitled for damages but not declaratory
remedy and consequential relief as prayed in the
plaint.
21. Per contra, Mr. Kapil Sibal, the learned senior
counsel on behalf of respondent nos.1, 2 & 4 sought
to justify the impugned judgment and order passed by
the High Court by urging various factual as well as
legal contentions in justification of the impugned
judgment.
22. It was further contended by him that both thePage 15
15
respondent nos. 2 and 3 have fulfilled all the terms
and conditions of the letter of allotment of
distributorship which was given to them by IOCL. It
is IOCL which has violated the said terms and
conditions by not sending a copy of the standard
agreement despite repeated demands made by respondent
no.2 to IOCL. Both the respondent nos. 2 and 3
started their business on 23.03.1972 on the basis of
the letter of allotment. At no point of time they
were made acquainted with the terms and conditions of
the standard agreement by IOCL. He further submitted
that the agreement which is not executed by the
parties cannot be legally made enforceable against
them. Therefore, the terms and conditions of the
standard agreement cannot be made binding upon them
as they have not executed the same. Thus, the
termination of the distributorship of Indane Gas as
per the terms and conditions enumerated in the said
standard agreement is illegal as has been rightly
held by the High Court in its reasoned judgment by
answering the substantial question of law in favour
of respondent no.1 & 2.
Page 16
16
23. It was further contended by him that as per
condition no.8 of the letter of allotment IOCL
reserved the right to terminate the distributorship
without assigning any reason by giving 30 days notice
in writing. The purpose of the said 30 days notice
was to afford time to both the respondent nos. 2 and
3 to advance their explanation against such intended
termination made by the IOCL by invoking its right
under condition no.8. He further submitted that IOCL
itself has completely violated the terms enumerated
in condition no.8 of letter of allotment. It has
arbitrarily terminated the distributorship by issuing
a letter without giving any notice to them by giving
irrelevant reasons which is in violation of the
principles of natural justice as well. In his further
submissions he assailed the condition no.8 of the
letter of allotment itself. He submitted that the
said condition is unconscionable in so far as it gave
IOCL an unfettered right to terminate the
distributorship of Indane Gas in favour of both the
respondent nos. 2 & 3 without assigning any reason
whatsoever. He fortified his submission by placing
strong reliance upon the decision of this Court inPage 17
17
Central Inland Water Transport Corporation Limited &
Anr. V. Brojo Nath Ganguly & Anr.2 which has been
followed by the Constitution Bench of this Court in
the case of Delhi Transport Corporation v. DTC
Mazdoor Congress and Others.
3 The relevant paragraph
from Central Inland Water Transport’s case (supra)
cited by the learned senior counsel is extracted in
the later part of this judgment.
24. It was further contended by him that IOCL, being
a Government of India Undertaking is bound to act
fairly and its conduct is subject to scrutiny on the
touchstone of Article 14 of the Constitution of
India. He further submitted that it is clear from the
evidence on record that the action of IOCL was high
handed and arbitrary. He placed strong reliance upon
the decision of this Court in the case of Mahabir
Auto Stores and Ors v. Indian Oil Corporation & Ors.
4
Paragraph 12 of the aforesaid case reads thus:
“12. It is well settled that every action of
the State or an instrumentality of the State in
exercise of its executive power, must be
informed by reason. In appropriate cases,
actions uninformed by reason may be questioned
2
(1986) 3 SCC 156
3 1991 Supp (1) SCC 600
4
(1990) 3 SCC 752Page 18
18
as arbitrary in proceedings under Article 226
or Article 32 of the Constitution. Reliance in
this connection may be placed on the
observations of this Court in Radha Krishna
Agarwal v. State of Bihar. It appears to us, at
the outset, that in the facts and circumstances
of the case, the respondent company IOC is an
organ of the State or an instrumentality of the
State as contemplated under Article 12 of the
Constitution. The State acts in its executive
power under Article 298 of the Constitution in
entering or not entering in contracts with
individual parties. Article 14 of the
Constitution would be applicable to those
exercises of power. Therefore, the action of
State organ under Article 14 can be checked.
See Radha Krishna Agarwal v. State of Bihar at
p. 462, but Article 14 of the Constitution
cannot and has not been construed as a charter
for judicial review of State action after the
contract has been entered into, to call upon
the State to account for its actions in its
manifold activities by stating reasons for such
actions. In a situation of this nature certain
activities of the respondent company which
constituted State under Article 12 of the
Constitution may be in certain circumstances
subject to Article 14 of the Constitution in
entering or not entering into contracts and
must be reasonable and taken only upon lawful
and relevant consideration; it depends upon
facts and circumstances of a particular
transaction whether hearing is necessary and
reasons have to be stated. In case any right
conferred on the citizens which is sought to be
interfered, such action is subject to Article
14 of the Constitution, and must be reasonable
and can be taken only upon lawful and relevant
grounds of public interest. Where there is
arbitrariness in State action of this type of
entering or not entering into contracts,
Article 14 springs up and judicial review
strikes such an action down. Every action of
the State executive authority must be subject
to rule of law and must be informed by reason.Page 19
19
So, whatever be the activity of the public
authority, in such monopoly or semi-monopoly
dealings, it should meet the test of Article 14
of the Constitution. If a governmental action
even in the matters of entering or not entering
into contracts, fails to satisfy the test of
reasonableness, the same would be unreasonable.
In this connection reference may be made to
E.P. Royappa v. State of Tamil Nadu, Maneka
Gandhi v. Union of India, Ajay Hasia v. Khalid
Mujib Sehravardi, R.D. Shetty v. International
Airport Authority of India and also Dwarkadas
Marfatia and Sons v. Board of Trustees of the
Port of Bombay. It appears to us that rule of
reason and rule against arbitrariness and
discrimination, rules of fair play and natural
justice are part of the rule of law applicable
in situation or action by State instrumentality
in dealing with citizens in a situation like
the present one. Even though the rights of the
citizens are in the nature of contractual
rights, the manner, the method and motive of a
decision of entering or not entering into a
contract, are subject to judicial review on the
touchstone of relevance and reasonableness,
fair play, natural justice, equality and nondiscrimination
in the type of the transactions
and nature of the dealing as in the present
case.”
25. Mr. V.K. Monga, the learned counsel on behalf
of respondent no.3 in his contentions supported the
arguments advanced by Ms. Pinky Anand, the learned
ASG on behalf of appellant-IOCL.
26. After careful considerations of the findings of
the High Court both on fact and law and considering
the rival legal submissions made on behalf of thePage 20
20
parties, we agree with the arguments advanced by Mr.
Kapil Sibal. We have examined the material on record
and on the basis of the admitted facts, it is clear
that there is no dispute that the appellant-IOCL
offered distributorship of Indane Gas (LPG) to
respondent nos.2 and 3 vide its letter of allotment
dated 21.10.1971 on certain terms and conditions.
It is also an admitted fact that both
respondent nos. 2 and 3 got the partnership firm
registered as per the terms and conditions of letter
of allotment and at least twice requested IOCL to
send the Company’s standard agreement for signature,
but IOCL failed to send it to them. Hence, it can be
inferred from the pleadings and evidence on record
that the Company’s standard agreement was never
executed by them.
27. On 23.03.1972 both the respondent nos. 2 and 3
started their business without the said standard
agreement being signed by both of them. The
partnership business continued to be regulated by the
terms and conditions of the letter of allotment
issued by IOCL. Hence, the claim of IOCL that bothPage 21
21
the respondent nos. 2 and 3 were aware of the said
standard agreement is unsusceptible in law. There is
nothing on record to show that both the respondent
nos. 2 and 3 had any knowledge or had ever agreed to
the terms of the said standard agreement. We agree
with the submission made by Mr. Sibal that the
agreement which is not executed by the parties cannot
be legally made enforceable against them. Therefore,
the High Court has rightly held that the standard
agreement cannot be said to be legally binding upon
the respondent nos. 2 and 3 as the same has never
been executed between the allottes and IOCL.
28. Further, Section 7 of the Indian Contract Act
1872, specifically provides that acceptance must be
absolute. It reads thus:
“In order to convert a proposal into a promise
the acceptance must –
(1)be absolute and unqualified.
(2)be expressed in some usual and reasonable
manner, unless the proposal prescribes the
manner in which it is to be accepted. If the
proposal prescribes a manner in which it is to
be accepted; and the acceptance is not made in
such manner, the proposer may, within a
reasonable time after the acceptance is
communicated to him, insist that his proposal
shall be accepted in the prescribed manner,Page 22
22
and not otherwise; but; if he fails to do so,
he accepts the acceptance.”
It is clear from the pleadings and evidence on record
that the standard agreement was never supplied to
both the respondent nos. 2 and 3 and the said
standard agreement cannot be said to be executed
between the allottes and IOCL. Thus, as per the facts
and circumstances of the case and also in the light
of the aforesaid statutory provision of the Contract
Act, the said standard agreement in question cannot
be said to be a concluded contract between the
parties in law. Consequently, it cannot be made
binding upon the allottes of distributorship by IOCL.
29. As far as the alleged violation of clause 21
(supra) of the standard agreement by respondent nos.
2 and 3 is concerned, it is clear that the said
standard agreement is not binding upon the parties
for the reasons stated supra and when the said
standard agreement is not binding, then the question
of violation of terms and conditions does not arise.
Rather IOCL has violated condition no.2 (supra) of
the letter of allotment by not sending the standardPage 23
23
agreement to both the respondent nos. 2 and 3.
30. We agree with the contentions advanced by
Mr. Sibal that condition no.8 of the letter of
allotment is unconscionable as it gives IOCL an
unfettered right to terminate the distributorship
without assigning any reason. In the instant case,
respondent no.2 is far weaker in economic strength
and has no bargaining power with IOCL. At the time
when the letter of allotment was issued, respondent
no.2 had no other means of livelihood and was
dependent on the grant of Indane Gas agency by IOCL
for sustenance of himself and family members. The
letter of allotment contains standard terms and
respondent nos. 2 and 3 had no opportunity to vary
the same. Condition no.8 of letter of allotment
provides for unilateral termination of
distributorship without assigning any reason which is
liable to be read down in the light of Article 14 of
Constitution of India as well as observations made by
this court in Central Inland Water Corporation
Limited’s case (supra). The relevant paragraph cited
by the learned senior counsel is reproduced
hereunder:
“89. Should then our courts not advance with
the times? Should they still continue to cling
to outmoded concepts and outworn ideologies?
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 19th 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 underfoot 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 Article 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 the 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. 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 infrastructural
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 be enumerated nor fully illustrated.
The court must judge each case on its own facts
and circumstances.”
31. Further, it has been rightly contended by the
learned senior counsel Mr. Sibal by placing reliance
upon Mahabir Auto Stores’s case (supra) that IOCL
being a Government of India Undertaking is bound to
act fairly, reasonably and its conduct is subject to
scrutiny on the touchstone of Article 14 of the
Constitution of India.
Answer to Point No.2
32. Ms. Pinky Anand, the learned Additional
Solicitor General on behalf of the appellant-IOCL
contended that the High Court has erred in granting
the relief of restoration of distributorship as the
same is contrary to the provision of Section 14(1)(c)
of the Specific Relief Act, 1963 (for short “the
Act”). She further contended that the agreement in
the instant case is determinable in nature and as per
the provision of Section 14 (1)(c) of the Act, the
agreement which is determinable in nature cannot be
specifically enforced by the court. Thus, the High
Court has erroneously held that the provision of
Section 14(1)(c) of the Act is not applicable to the
facts situation of the case.
33. She further contended that the High Court has
wrongly directed IOCL to restore the terminated
distributorship as the same is bad in law. She
submitted that once a distributorship, even if it is
terminated in breach of the contract, cannot be
restored in favour of the respondent no. 2 and the
only remedy available is to claim damages from IOCL.
She placed strong reliance upon the judgment of this
Court in the case of Indian Oil Corporation Ltd. v.
Amritsar Gas Services & Ors.5.
34. On the other hand, Mr. Kapil Sibal, the learned
senior counsel contended that the question of
maintainability of suit under Section 14(1)(c) of the
Act was never raised by IOCL either before the trial
court or before the first appellate court. He further
submitted that it is apparent from the letter of
allotment and the conduct of the parties that neither
the contract was revocable nor it had become void for
any reason. Thus, the provision of Section 14(1)(c)
of the Act is not attracted in the instant case as
has been rightly held by the High Court.
35. He further contended that the Amritsar Gas
Services & Ors. case (supra) relied upon by IOCL in
its contentions has no relevance in the instant case
for the reason that the said case relates to the Law
of Arbitration. In the instant case, it is clear from
the letter of allotment that there was no arbitration
clause enumerated therein to attract the Law of
5
(1991) 1 SCC 533Page 28
28
Arbitration and related case laws.
36. We agree with the contentions advanced by the
Mr. Sibal. The High Court in the impugned judgment
and order has rightly held that the provision under
section 14(1)(c) of the Act is not applicable to the
facts and circumstances of the instant case. It held
thus:
“10.(iii) Furthermore, from the terms of
agreement, namely, the letter of allotment and
the conduct of the parties, it appears that
neither the contract was revocable nor it had
become void for any reason whatsoever. Hence,
provision of Section 14(1)(c) of the Specific
Relief Act is not applicable to the facts and
circumstances of the instant case and the suit
cannot be legally held to be maintainable
under the said provision…”
37. Furthermore, from a perusal of letter of
allotment, it is clear that there is no arbitration
clause therein. Thus, the case of Amritsar Gas
Services (supra) relied upon by IOCL in its
contentions is of no relevance.
Answer to Point No.3
38. For the reasons mentioned supra we are of the
view that no error has been committed by the High
Court in setting aside the erroneous findings of the
trial court as well as the first appellate court in
its judgments and orders.
39. The facts and circumstances of this case are
such that we are constrained to make observation that
the appellant-IOCL must be very cautious and careful
while exercising its power to terminate the
distributorship of this nature. For the aforesaid
reasons the appeal is liable to be dismissed.
40. On the issue of cost, we are of the opinion that
since the respondents have been litigating for a
period of around 37 years, spending precious time in
the courts of law seeking justice for themselves, they
are entitled thereto in the facts and circumstances of
the case. The respondent nos. 2 and 3 are exservicemen
in whose favour the distributorship was
awarded, the same was terminated arbitrarily and
unfairly. This conduct on the part of IOCL defeats the
laudable object of the scheme of the Government of
India by which distributorship was allotted in favour
of the ex-defence personnel, war-widows and
dependants. Thus, respondent nos. 1 & 2 deserve to be
awarded with costs.
41. Accordingly, we pass the following orderi)
This Civil Appeal is dismissed. The
order dated 13.12.2007 granting stay shall
stand vacated.
ii) We direct the appellant-IOCL to restore
the LPG distributorship in favour of
respondent nos. 1 or 2 and 3 forthwith and
submit a compliance report to this court.
iii) The cost of Rs. 1 lakh be paid to
respondent nos. 1 and 2 within four weeks
from the date of receipt of the copy of the
Judgment.
iv) All pending applications are disposed
of.
…………………………………………………………J.
[V.GOPALA GOWDA]
…………………………………………………………J.
[AMITAVA ROY]
New Delhi,
December 1, 2015
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