Holding

The "preferably" timeline in the Guidelines is not mandatory, and stock variation beyond permissible limits with a failed sample is a critical irregularity justifying termination of the dealership.

Summary

The dealer, M/s R.M. Service Centre, held a retail licence for petrol, diesel, oil and grease. A joint inspection revealed a positive stock variation of High Speed Diesel beyond permissible limits and lack of reference density. Samples drawn were sent for testing; the first was dispatched five days after collection, exceeding the "preferably within ten days" guideline, and all samples failed to meet specifications. The oil company issued a show‑cause notice and terminated the dealership. The High Court held the timeline mandatory and set aside the termination; the Division Bench affirmed. The Supreme Court held that the word "preferably" in the Marketing Discipline Guidelines is not a mandatory requirement, a five‑day delay is permissible, and that stock variation beyond limits coupled with a failed sample constitutes a critical irregularity under Clause 8.2, justifying termination. Consequently, the Court allowed the appeal, dismissed the writ petition and upheld the termination.

Issues considered

Whether the "preferably within ten days" timeline in the Marketing Discipline Guidelines is mandatory or merely preferred.
Whether a positive stock variation beyond permissible limits together with a failed sample amounts to a critical irregularity warranting termination of dealership.
Whether procedural requirements under the Control Order and Section 100 of the CrPC apply to the sample‑collection process in this civil dispute.
Whether the dealer was afforded natural‑justice rights, such as proper notice, before termination.

Legislation cited

Code of Criminal Procedure, 1973s. 100
Essential Commodities Act, 1955s. 3, s. 6A, s. 7

Subjects

Marketing Discipline GuidelinesDealership terminationStock variationAdulterationPreferential timelineEssential Commodities ActNatural justiceShow cause noticeSample testingCritical irregularity

Judgment

[2019] 13 S.C.R. 1113 1113

INDIAN OIL CORPORATION LTD. & ORS. A
v.
M/S. R.M. SERVICE CENTRE & ANR.
(Civil Appeal No. 8257 of 2019)
NOVEMBER 07, 2019 B
[L. NAGESWARA RAO AND HEMANT GUPTA, JJ.]
Marketing Discipline Guidelines, 2012 – Cl.5.1.11, 5.1.9, 8.2
and sub-cl.I of cl.2.5 – Termination of the dealership – Respondent
No.1-dealer had retail dealership for sale of motor spirit (petrol),
C
High Speed Diesel, motor oil and grease – A joint inspection was
conducted by the appellants and it was found that there was
variation of stock of High Speed Diesel beyond permissible limit
and non-availability of reference density was also observed –
Samples were drawn and sent for testing – The samples failed to
meet the specifications – The dealer was informed of the result – D
Thereafter, dealership was terminated – Writ petition by the dealer
– The Single Judge of the High Court allowed the writ petition and
held that there was non-compliance of the timeline fixed for
submitting the samples for testing in laboratory – The samples were
required to reach the laboratory preferably within ten days whereas,
E
the first sample was sent and tested after ten days and the umpire
sample was tested even later – Decision of the Single Judge of the
High Court was upheld by the Division Bench of the High Court –
On appeal, held: In the instant case, there was a delay of 5 days –
Since the guidelines use the timeline as a preferred timeline, it cannot
be said that the timeline mentioned has to be strictly adhered to and F
is mandatory – The language, the purport and the effect of testing
do not warrant to read the word ‘preferably’ as mandatory timeline
– 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 was to
G
be initiated – The adulteration in these circumstances was a critical
irregularity falling in Cl.8.2 of the guidelines and the action required
to be taken was termination of the dealership – The action was
rightly taken to terminate the dealership of the respondent no.1 –
Consequently, the order passed by the High Court set aside.
H
1113
1114 SUPREME COURT REPORTS [2019] 13 S.C.R.

A Allowing the appeal, the Court
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
B 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, sub-
clause A of Clause 2.5 of the Guidelines provides that all samples
should be suitably coded before sending them to the laboratory
C 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
D 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; 1124-
G-H; 1125-A]
2. The Guidelines as mentioned in sub-clause I of Clause
E 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
F 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
G 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
H
INDIAN OIL CORPORATION LTD. & ORS. v. 1115
M/S. R.M. SERVICE CENTRE & ANR.

only because one sample was found with sludge. There is no A
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 B
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 C
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 D
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 E
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 F
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 G
dealer. [Para 18][1126-C-E]
Hindustan Petroleum Corporation Limited & Ors. v.
Super Highway Services & Anr (2010) 3 SCC 321 :

H
1116 SUPREME COURT REPORTS [2019] 13 S.C.R.

A [2010] 2 SCR 1053; Bharat Petroleum Corporation
Limited v. Jagannath And Company & Ors. (2013) 12
SCC 278 : [ 2013] 2 SCR 828 - referred to.
Case Law Reference
[2010] 2 SCR 1053 referred to Para 10
B
[2013] 2 SCR 828 referred to Para 10
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8257
of 2019.
From the Judgment and Order dated 20.02.2018 of the Gauhati
C
High Court in W.A. No. 74 of 2016.
Ms. Pinky Anand, Sr. Adv., Mrs. Priya Puri, Yati Sharma,
Ms. Saudamini Sharma, Manish Goswami, Ikbal Ahmed, C. M. Angadi,
Shereef K.A., Rameshwar Prasad Goyal, Vikrant Yadav, Manish,
D Raj Bahadur, Advs. for the appearing parties.
The Judgment of the Court was delivered by
HEMANT GUPTA, J.
1. The challenge in the present appeal is to an order of the Division
E Bench of the Gauhati High Court passed in writ appeal on 20 th February,
2018 maintaining an order of the Single Bench of the High Court whereby
termination of dealership of respondent No. 11 for violation of Marketing
Discipline Guidelines, 20122 was set aside.
2. The dealer was granted retail dealership for sale of motor spirit
F (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
G
that tanker truck retention of the corresponding tank was not available
at the time of inspection. The appellant had drawn three samples from
Tank No. 2. One sample was sent for testing, another sample was retained
1
for short, ‘dealer’
2
H for short, ‘Guidelines’
INDIAN OIL CORPORATION LTD. & ORS. v. 1117
M/S. R.M. SERVICE CENTRE & ANR. [HEMANT GUPTA, J.]

by the Field Survey Officer and the third sample was handed over to the A
dealer. A show cause notice was issued to the dealer on 6 th May, 2013,
alleging violation of Clauses 5.1.9 and 5.1.11 of the Guidelines. The dealer
submitted his explanation on 21st May, 2013, inter alia, stating that
dispensing unit was not working properly and, therefore, wrong readings
were shown. B
th
3. The dealer was informed on 27 June, 2013 that test report of
High-Speed Diesel samples drawn from the tank on 6th May, 2013 had
been received. The report was that the samples failed to meet the
specifications. Thereafter, in response to a show cause notice dated 27th
June, 2013 to explain the non-conformities detected, the dealer vide letter C
dated 17th July, 2013 requested to seek retesting of the umpire sample
which was drawn on the same day, sealed, and certified by the appellants.
The stand of the dealer was that the dispensing unit was 20 years old
and due to lack of maintenance on account of the road-widening project,
the totalizer had been showing wrong readings. D
th
4. The request of the dealer for retest was accepted on 6 August,
2013. The retest was carried out in the Laboratory of the appellants on
two sets of samples including the one retained by the Field Survey Officer
of the appellants. The report of the aforesaid two sets of samples was
issued on 19th August, 2013. The report of the sample which was retained E
by Field Survey Officer of the appellants was that it did not meet the
BIS III specifications whereas, the sample of the dealer was not fit for
testing due to presence of sludge.
5. On the basis of the test reports dated 29th May, 2013 and 19th
August, 2013, the dealership was terminated on 25th April, 2014 after F
serving another show cause notice dated 10th December, 2013 wherein,
it has been stated that deviation was observed during inspection pertaining
to stock variation and non-availability of reference density. The appellants
have mentioned details of non-conformity and the violation of the Clauses
in the letter of termination dated 25th April, 2014, which read as under: G
SN NON CONFORMITY VIOLATION OF C LAUSE REF
NO MDG 2012
1. St ock Variation (Positive) of HS D Clause No. 5.1.11
beyond permissible
2. Non-availability of reference Clause No. 5.1.9
density (Tank-2) at the time of H
inspection.
1118 SUPREME COURT REPORTS [2019] 13 S.C.R.

A 6. It was also pointed out that out of three samples drawn from
Tank No. 2 on 6th May, 2013, one sample was sent to the Laboratory,
another was retained by the Field Survey Officer and the third sample
was handed over to the dealer. The result of the three samples is as
under:
B SN Test report number Test report date Status Details o f sample
1. NERL/MDG/HS- 29.05.2013 Does not meet Nozzle sample
62/2013 specification collected on
06.05.2013 and sent to
Betkuchi fo r testing
2. NERL/MDG/HS- 19.08.2013 Does not meet Nozzle sample
77/2013 specification collected on
06.05.2013 and
C retained with Field
Officer till subseq uent
test on 19.08.2013.
3. NERL/MDG/HS- 19.08.2013 Test not Nozzle sample
77/2013 conducted collected on
06.05.2013 and
retained with you till
D 19.08.2013 could not
be tested due to
presence of sludge.

7. In view of the above, the following violations were detected
and the penal action was taken:
E “In view of the above the cumulative MDG violations detected
and established in the Retail Outlet are as follows:
a. Stock variation beyond permissible limit (Violation of MDG-
2012 Clause no. 5.1.11)
b. Nozzle Sample failure of HSD. (Violation of MDG 2012 Clause
F
no. 5.1.1)
c. Non availability of reference density (Violation of MDG-2012
Clause no. 5.1.9)
d. Non availability of TT retention sample (Violation of MDG-
G 2012 Chapter 5 notes-i)
The penal action for the irregularity mentioned in point no (a) &
(b) is termination in the first instance as per Clause no 8.2 of
MDG-2012. The penal action for the irregularity mentioned in
point no (c) & (d) is Warning cum Guidance letter in the first
H instance as per Clause no 8.4 of MDG-2012.
INDIAN OIL CORPORATION LTD. & ORS. v. 1119
M/S. R.M. SERVICE CENTRE & ANR. [HEMANT GUPTA, J.]

The above stated irregularities are also in violation of the provisions A
made under clause no. 27 and clause no. 40 of the dealership
agreement executed by and between you and the corporation on
20.12.1995.”
8. The dealer challenged the termination of the dealership before
the Gauhati High Court. The learned Single Judge allowed the writ petition B
on 13th October, 2015 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. C
The learned Single Judge held as under:
“27. Turning to the provisions under Clause 2.4.4 Notes (2), Clause
2.5 and Clause 2.10 of the Guidelines, the time-limits prescribed
for sending the samples to the laboratory from the date of collection
as well as the time within which the sample should be tested from D
the date when it reached the laboratory, are provisions that requires
strict adherence. If a contrary view is adopted to allow the
respondent Corporation to take as much time at its discretion for
sending the sample to the laboratory and thereafter to get it tested,
the said provisions prescribing time-limits would be rendered otiose
and redundant. On that account, the time-limits ought not to have E
been prescribed/mentioned in the said Clauses in the first place.
Surely, this cannot be the intention of IOCL being full well aware
that time gap between the sample taken and laboratory test is
essentially to be maintained so as to avert any variations in the
density test of the sample so collected. The argument of Mr. MK F
Choudhury that the word “preferably” occurring in the said clauses
cannot be construed as “mandatory”, this Court rejects the said
contention and holds that the adherence of the time-limits
prescribed under the Guidelines is directly proportionate to the
ultimate decision that would be reached. The time-limits and
G
adherence thereof is a contractual obligation that has to be
discharged by the Oil Corporation in letter and spirit.”
9. 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.
H
1120 SUPREME COURT REPORTS [2019] 13 S.C.R.

A 10. The Division Bench of the High Court, in appeal, agreed with
the finding recorded by the learned Single Bench. The Court relied upon
judgments of this Court in Hindustan Petroleum Corporation Limited
& Ors. v. Super Highway Services & Anr.3 and Bharat Petroleum
Corporation Limited v. Jagannath And Company & Ors.4. It was
held by the Division Bench of the High Court that the finding recorded
B by the learned Single Judge is a plausible finding, therefore, does not
warrant interference in an intra-court appeal.
11. Learned counsel for the appellants argued that the findings
recorded by the High Court that the Guidelines require strict adherence
is a total misreading of the Guidelines. For such an argument, reference
C is made to Note 2 of Clause 2.4.4; Sub-Clauses A and I of Clause 2.5;
Clause 8.2 classifying critical irregularities; Clause 8.3 classifying major
irregularities as well as Clause 5.1.1 of what is meant by the adulteration
and Clause 5.1.11 providing for consequences of stock variation to
contend that in the event of failure of sample in the cases of positive
stock variation beyond permissible limit, action in line with that of
D
adulteration is to be initiated. Thus, apart from the adulteration, even the
stock variation in the event of failure of sample leads to critical irregularity.
It is contended that the High Court erred in allowing the writ petition and
setting aside the termination of the dealership. The relevant Clauses
from the Guidelines read as under:
E “1.5 Observance of statutory and other regulations
(i) All statutory rules and regulations in connection with storage
and sale of petroleum products must be followed and implemented,
such as maintaining stock/sales & density records, display of daily
stock, price board etc.
F
xx xx xx
(v) The provisions contained in the Motor Spirit and High Speed
Diesel (Prevention of Malpractices in Supply & Distribution) Order
issued by the Government of India (or any amendment or revision
thereof) and instructions issued by the Oil Company/State Govt.
G authorities etc. from time to time shall be strictly adhered to and
all concerned records shall be maintained and produced to
Inspecting officials on demand.

3
(2010) 3 SCC 321
4
H (2013) 12 SCC 278
INDIAN OIL CORPORATION LTD. & ORS. v. 1121
M/S. R.M. SERVICE CENTRE & ANR. [HEMANT GUPTA, J.]

2.4.4 Drawal of samples by mobile laboratories A
xx xx xx
Notes:
(1) xx xx xx
(2) All the above samples should reach the laboratories for testing B
preferably within 10 days of the collection of the samples.
xx xx xx
2.5 General procedure for drawal of samples
(A) All samples should preferably be suitably coded before sending
C
to lab for testing preferably within 10 days of drawal.
xx xx xx
(I) The purpose of mentioning time frame for various activities
e.g. sending samples to lab preferably within 10 days etc. is to
streamline the system and is no way related to quality/result of
D
the product.
xx xx xx
5.1 MS/HSD
5.1.1. Adulteration of product
E
Definition:
“Adulteration” means the introduction of any foreign substance
into Motor Spirit/High Speed Diesel illegally or unauthorizedly with
the result that the product does not conform to the requirements
of Bureau of Indian Standards specification number IS:2796 and
IS:1460 for Motor Spirit and High Speed Diesel respectively and F
amendments thereon, and/or
If the observations on the sample under scrutiny and the reference
sample do not fall within reproducibility/permissible limits of the
test method for which the samples are examined, and/or
Any other requirement for the purpose to identify adulteration, G
issued by the Competent Authority from time to time.
xx xx xx
5.1.11 Stock variation of MS/HSD (Beyond permissible limits)
Fuel
H
1122 SUPREME COURT REPORTS [2019] 13 S.C.R.

A Stock reconciliation should be carried out and variation, if any,
established after taking into account the normal operational
variation of 4% of tank stock and after considering the following
factors:
xx xx xx
B In case of positive stock variation beyond permissible limits,
samples will be drawn and sent to laboratory for testing. Sales
and supplies of all products to be suspended immediately. Study
to be carried out to identify the reasons for stock variation. If the
sample passes but some other irregularity like unauthorized
C purchase etc. is established action to be taken accordingly.
However, if the sample fails, action in line with that of adulteration
will be initiated.
xx xx xx
8. Action to be taken by OMC under the Marketing Discipline
D Guidelines
8.1 All irregularities (mentioned in chapter-5) are classified into
three categories, i.e. Critical, Major and Minor.
8.2 Critical Irregularities: The following irregularities are classified
as critical irregularities:
E
i. Adulteration of MS/HSD (5.1.1)
xx xx xx
Action:
Termination at the First instance will be imposed for the above
F irregularities.
8.3 Major Irregularities: The following irregularities are classified
as major irregularities:
i. xx xx xx
G ii. Non availability of reference density at the time of inspection.
(5.1.9)
iii. xx xx xx
iv. Stock variation beyond permissible limits but sample passing
quality tests. (5.1.11)
H
xx xx xx
INDIAN OIL CORPORATION LTD. & ORS. v. 1123
M/S. R.M. SERVICE CENTRE & ANR. [HEMANT GUPTA, J.]

Action: Except in case of (iii), (vii), (viii), (ix) and (x) above: A
First instance: Suspension of sales and supplies for 15 days.
Second instance: Suspension of sales and supplies for 30 days.
Third instance: Termination of the dealership.
xx xx xx B
8.5.1 The above are general guidelines and the actions prescribed
in MDG 2012 are minimum. The competent Authority of the
concerned Oil Company can however take appropriate higher
action against the erring dealer, if deemed necessary including
termination in the first or any instance in line with the provisions C
of the Agreement.”
12. On the other hand, Mr. Goswami, learned counsel for the
dealer argued that if three samples were drawn at the same time, it is
not believable that the sample with the dealer alone has been found to be
containing sludge. If the samples were taken at the same time, finding of D
sludge from the umpire sample completely knocks down the stand of the
appellants that the samples have failed in the test, as the authenticity of
the samples taking process is doubtful. It is further contended that in
terms of Clause 1.5 (v) of the Guidelines, the Motor Spirit and High
Speed Diesel (Prevention of Malpractices in Supply & Distribution)
E
Order, 20055 issued by the Government of India is applicable. The said
order provides for a procedure of search and seizure. The search and
seizure in terms of Clause 7 of the Control Order issued under Section 3
of the Essential Commodities Act, 19556 can be effected only in the
presence of two independent witnesses as is required under Section 100
of the Code of Criminal Procedure, 19737. Since, the sample has not F
been taken in the manner prescribed in the order read with Section 100
of the Code, therefore, the termination of the dealership is wholly illegal.
It is argued that such argument was raised before the learned Single
Judge but the same was not examined in view of the fact that the
Guidelines were found to be mandatory in nature. It is contended that
G
the findings recorded by the High Court, that the time limit in the Guidelines
is mandatory, owing to the larger public interest to serve and the appellants
cannot take benefit of its delay, in sending samples for testing to lead a
5
for short, ‘Control Order’
6
for short, ‘Act’
7
for short, ‘Code’ H
1124 SUPREME COURT REPORTS [2019] 13 S.C.R.

A penal consequence of termination of the dealership is the correct
enunciation of law. It is contended that termination of dealership is a
serious consequence affecting right of a dealership under Articles 21
and 14 of the Constitution of India. Learned counsel for the dealer relied
upon the judgments referred to by the Division Bench of the High Court.
B 13. The first issue required to be examined is whether the appellants
were required to follow the procedure under the Control Order read
with Section 100 of the Code. The Control Order has been issued under
Section 3 of the Act. Such Act has been enacted for control of the
production, supply and distribution and trade and commerce, of certain
commodities. In respect of High Speed Diesel and Motor Spirit, the
C Control Order is issued for regulation of supply and distribution and
prevention of the malpractices. Section 6A of the Act provides for
confiscation of the essential commodity whereas, Section 7 of the Act
makes any person who contravenes any order made under Section 3
liable for criminal prosecution. Therefore, we find that the effect of
D issuance of the Control Order is that in the event of violation of such
Control Order, any person who contravenes any order made under
Section 3 of the Act i.e. the Control Order, he is liable to be punished by
a Court. Therefore, the violation of the Control Order has penal
consequences leading to conviction. The provisions of search and seizure
contained in Clause 7 read with Section 100 of the Code will come into
E play only in the event a person is sought to be prosecuted for violation of
the provisions of the Control Order. Admittedly, in the present case, the
dealer is not sought to be prosecuted for the violation of the Guidelines,
therefore, the procedure for drawing of samples which is a necessary
pre-condition under the Control Order for prosecuting an offender does
F not arise for consideration.
14. The dealer has entered into an agreement on 20th December,
1995. It is not disputed that the dealer is bound by the Guidelines 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
G that the samples drawn should reach the laboratory for testing “preferably
within ten days of the collection of the samples”. Similarly, sub-clause 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
H
INDIAN OIL CORPORATION LTD. & ORS. v. 1125
M/S. R.M. SERVICE CENTRE & ANR. [HEMANT GUPTA, J.]

activities such as sending samples to the laboratory preferably within A
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.
15. The Guidelines as mentioned in sub-clause I of Clause 2.5 of B
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. The sample in this case was drawn on 6th May, 2013
and was sent for testing on 22nd May, 2013 i.e. 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 C
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 D
objections regarding delay in sending the sample in the two replies
submitted by him on 17th July, 2013 and 2nd January, 2014. 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 E
one sample was found with sludge. There is no material to doubt the
correctness of the samples taken.
16. The first test report dated 29th May, 2013 was found deficient
in the density as also in K.V. @40 degree celsius, sulphur and distillation
recovery. Even the report dated 19th August, 2013 is found to be deficient F
in density, K.V., distillation recovery and sulphur. The result of the second
report is almost the same as the sample tested on 29th May, 2013. Thus,
the appellant has rightly terminated the dealership for adulteration of the
High Speed Diesel.
17. There was variation in stock beyond permissible limits. In G
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 H
1126 SUPREME COURT REPORTS [2019] 13 S.C.R.

A 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
B
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.
18. The judgments referred to by the learned counsel for 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
C 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
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
D report dated 19th August, 2013, the sample was found to have the same
deviations as in the first sample tested on 29th May, 2013. 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.
E
19. Consequently, we find that 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.

F
Ankit Gyan Appeal allowed.

G

H