Indian Oil Corporation Ltd. & Ors. vs M/s. R.M. Service Centre & Anr.

HELD: 1. The dealer was granted retail dealership for sale of motor spirit (petrol), High Speed Diesel, motor oil and grease. It is not disputed that the dealer is bound by the Marketing Discipline Guidelines, 2012 issued by the Public Sector Oil Marketing Companies. Clause 2.4.4 of the Guidelines provides for procedure for drawing of samples. Note 2 provides that the samples drawn should reach the laboratory for testing “preferably within ten days of the collection of the samples”. Similarly, subclause A of Clause 2.5 of the Guidelines provides that all samples should be suitably coded before sending them to the laboratory for testing ‘preferably’ within ten days of drawing the samples. Sub-clause I of Clause 2.5 of the Guidelines is that the purpose of mentioning time frame for various activities such as sending samples to the laboratory preferably within ten days is to streamline the system and is in no way related to quality/result of the product. In view of the language of the Guidelines, the findings recorded by the High Court that the time line is to be strictly adhered to cannot be sustained. [Paras 2 and 14][1116-F; 1124G-H; 1125-A]

2. The Guidelines as mentioned in sub-clause I of Clause

2.5 of the Guidelines is to streamline the functioning i.e. the oil companies should not arbitrarily or without any justification send the sample for testing at their sweet will. In the present case, there was a delay of 5 days. Since the Guidelines use the time line as a preferred time line, it cannot be said that the time line mentioned has to be strictly adhered to and is mandatory. The language, the purport and the effect of testing do not warrant to read the word ‘preferably’ as mandatory time line. It is not the case of the dealer that the sample sent after five days will lose its efficacy as the umpire sample would be sent only after the first report is confronted to the dealer. Still further, the dealer has not raised any objections regarding delay in sending the sample in the two replies submitted by him. The argument that the umpire sample in the hands of the dealer could not be tested because of sludge and to doubt the other two samples is totally untenable. Such argument is based upon conjectures as the other two samples collected and sealed cannot be permitted to be disputed only because one sample was found with sludge. There is no material to doubt the correctness of the samples taken. [Para 15][1125-B-E]

3. 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. [Para17][1125-G-H; 1126-A-B]

4. The judgments referred to by the dealer are not applicable to the facts of the present case as in both the cases, the action taken by the oil company was found to be in violation of the principle of natural justice as no notice was served upon the dealer but, in the present case, after failure of the first sample in the test report, 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 following report, the sample was found to have the same deviations as in the first sample. 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. [Para 18][1126-C-E]

Hindustan Petroleum Corporation Limited & Ors. v. Super Highway Services & Anr (2010) 3 SCC 321 : [2010] 2 SCR 1053; Bharat Petroleum Corporation Limited v. Jagannath And Company & Ors. (2013) 12 SCC 278 : [ 2013] 2 SCR 828 - referred to.