2002 (12) TMI 564 - SC - Companies Law

Dealership termination invalidated as based on irrelevant allegations; writ relief preferred over compelled arbitration to protect livelihood

SC held that the termination of the appellants' dealership was not legitimately based on alleged non-cooperation or discourteous behavior; the appellants ... Exercise of writ jurisdiction despite availability of alternative remedy - arbitration clause in a contractual relationship - failure of principles of natural justice - reliance on irrelevant or non-existent grounds for termination - non-compliance with prescribed procedure for sampling and testingExercise of writ jurisdiction despite availability of alternative remedy - arbitration clause in a contractual relationship - failure of principles of natural justice - Whether the High Court was right to refuse writ relief on the ground that the contractual arbitration clause provided the appellants an adequate alternative remedy. - HELD THAT: - The Court held that the rule excluding writ jurisdiction because an alternative remedy exists is discretionary and not absolute. The High Court may nevertheless exercise writ jurisdiction in appropriate cases, including where enforcement of Fundamental Rights is sought, where there is failure of the principles of natural justice, or where proceedings are wholly without jurisdiction. Applying these principles, the Court found that the present case attracted the exception of failure of natural justice and concerned termination of the appellants' dealership which affected their livelihood, rendering the alternative remedy by arbitration an inadequate and inappropriate route for complete redress. Consequently, the High Court erred in dismissing the writ petition solely because an arbitration clause existed in the dealership agreement. [Paras 7]High Court's reliance on the arbitration clause to refuse writ jurisdiction was incorrect; writ jurisdiction was maintainable in this case.Reliance on irrelevant or non-existent grounds for termination - non-compliance with prescribed procedure for sampling and testing - Whether the termination of the appellants' dealership, which was founded solely on the failure of a sample test, was sustainable in view of non-compliance with prescribed sampling and testing procedure and delay in testing. - HELD THAT: - The Court examined the factual matrix and government directions governing sampling and testing, which required testing in the presence of the dealer and specified a time limit for testing. The sample taken on 11.2.2000 was not tested at the retail outlet in the presence of the appellants and the laboratory test occurred after a substantial delay, circumstances capable of causing marginal variation. The Court noted that other alleged grounds (misbehaviour, deficient records, low sales) were not particularised and had earlier been addressed without resulting termination. Given the procedural non-compliance in respect of the sample relied upon as the sole ground for termination, the failure in the sample was treated as an irrelevant and non-existent ground on which the Corporation could not validly base cancellation of the dealership. [Paras 5, 6]Termination founded solely on the contested sample test - carried out contrary to prescribed procedure and after delay - was unsustainable; the termination order was quashed.Final Conclusion: The appeals are allowed; the High Court's order is set aside and the Corporation's termination order dated 6.9.2000 quashed and set aside. No order as to costs. Issues:Termination of dealership agreement on grounds of sample failure, non-cooperation, and discourteous behavior. High Court's dismissal of writ petition due to arbitration clause in the agreement.Analysis:The judgment involves the termination of a dealership agreement between Indian Oil Corporation Limited and the appellants based on various grounds. The Corporation terminated the dealership due to a sample failure from the appellants' outlet, which did not meet standard specifications. Additionally, allegations of non-cooperation and discourteous behavior by the appellants were made. The State Government suspended the license of the appellants and imposed a fine. The High Court dismissed the appellants' writ petition, citing the presence of an arbitration clause in the agreement as the appropriate remedy. The appellants argued that the termination was based on irrelevant and non-existent grounds, emphasizing violations of government orders regarding sample testing procedures and delays in lab tests.The appellants contended that the cancellation was solely based on the sample failure, with vague allegations of non-cooperation and deficiencies in sales and record-keeping. The appellants provided an affidavit expressing regret for any misconduct and assured cooperation with Corporation officials in the future. The Supreme Court noted that the rule of exclusion of writ jurisdiction by the availability of an alternative remedy is discretionary, not compulsory. The Court highlighted that in cases involving fundamental rights enforcement or failures of natural justice, the High Court can still exercise writ jurisdiction. In this case, the termination of the dealership on irrelevant grounds warranted relief through the writ petition rather than arbitration proceedings.Ultimately, the Supreme Court allowed the appeals, setting aside the High Court's judgment and quashing the Corporation's termination order. The Court found the termination unjustified and ruled in favor of the appellants. No costs were awarded in the judgment.