2024 (12) TMI 1548 - HC - VAT / Sales Tax

Kerala HC validates Marketing Discipline Guidelines 2018 but quashes penalty orders for lacking proper reasoning

M/s. ASWATHY GAS AGENCIES, S. REJITHA, MANI C.V. Versus UNION OF INDIA, INDIAN OIL CORPORATION LIMITED, THE CHIEF AREA MANAGER & OTHERS

Kerala HC upheld the validity of Marketing Discipline Guidelines, 2018 (MDG) and Corporation's authority to impose monetary penalties on petroleum ... Challenge to penalty imposed - seeking a declaration that the Marketing Discipline Guidelines, 2018 (MDG) on the basis of which penalty was imposed, is not having any force of law and as beyond the purview of the agreements entered into with the respondent Corporation. Is the respondent Corporation entitled to impose monetary penalty with reference to the provisions of MDG? - HELD THAT:- By a judgment INDIAN OIL CORPORATION LIMITED AND OTHERS VERSUS ALL INDIA PETROLEUM DEALERS ASSOCIATION REGISTERED AND OTHERS; ALL HARYANA PETROLEUM DEALERS ASSOCIATION REGISTERED AND OTHERS; BIHAR PETROLEUM DEALERS ASSOCIATION AND ANOTHER [2022 (1) TMI 1484 - DELHI HIGH COURT], a Division Bench of the Delhi High Court has found that such monetary penalty can be imposed under the MDG, and hence the judgment of the learned Single Judge was set aside. In the light of the afore, the respondent Corporation is entitled to impose monetary penalty with reference to the provisions of the MDG, on the petitioners herein. Is the time limit prescribed under Clause 4.2(viii), mandatory in nature? - HELD THAT:- A detailed procedure is prescribed under the MDG, for initiation of appropriate actions against the distributers. The initiating authority has to prima facie satisfy himself as to the requirement for taking steps under the relevant chapter of the MDG - the provisions of Clause 4.2 cannot be taken to be mandatory in nature, since for arriving at a decision to proceed in accordance with Clause 4.2(viii), the procedure prescribed thereunder has to be complied with. Therefore, the stipulation of the period of 30 days for initiation of the notice can only be reckoned as “directory” in nature. Furthermore, it is noticed that the Delhi High Court, in the judgment referred to earlier, had found that the MDG has legal backing, especially when the intention behind the introduction of the MDG was laudable. Therefore, the provisions of Clause 4.2(viii) can only be directory in nature. Are the impugned orders in tune with the provisions of Clause 4.2(x) of MDG? - HELD THAT:- The allegations raised in the show cause notices are essentially with reference to the violation of the TDT norms under Chapter IV. When the MDG provides the dealer an opportunity to show cause against proposed action, it is imperative on the part of the officer concerned to consider the contentions raised/explanations offered and then arrive at a considered decision. As already found, by virtue of the judgment by the Division Bench of the Delhi High Court, the respondent Corporation is having every power and authority to act under the provisions of MDG. When that be so, it goes without saying that the directives in the MDG that a speaking order is required to be issued is also an essential pre-requisite for imposing a monetary penalty. In the case at hand, it is seen that Ext.P2 series [W.P(C) No.9331 of 2020) are the orders imposing the monetary penalty. A perusal of these orders would show that apart from the name of the distributor, the quarter concerned, the figures with respect to the alleged violation/commission/penalty, all other portions are one and the same. In other words, Ext.P2 series are stereotyped orders wherein, there are no reasons given for imposing the penalty. The impugned orders, to the extent of not following the mandate under Clause 4.2(x), need to be set aside. Is the imposition of penalty under Clause 4.2, with reference to average commission, illegal? - HELD THAT:- Clause 4.2 (Ext.P8 of W.P(C) No.30986 of 2023) only requires the imposition of a fine of 20% with respect to 20% of AMDC and that only visualizes the right of the petroleum company to levy a fine of 20% of the commission received for the “poor” rating in a quarter. Merely because the commission paid is for the performed part (not attracting penalty) and non-performance (poor performance attracting penalty), it cannot be said that there is any irrationality. Apart from the above, the vires of the MDG have already been upheld by the Division Bench of the Delhi High Court IOCL, and therefore, the afore contention raised cannot be accepted. Is there any ambiguity with reference to the rating prescribed under Clause 4.1 of MDG? - HELD THAT:- It may be noticed that the rating of “excellent” is provided in a situation where “more than 85%” delivery is effected within two days. The 1-star “poor” rating is provided in cases where the delivery in excess of 8 days period is “over 15%” of total deliveries. Clause 4.1(iii) provides “1 Star = 15% delivery in > 8 days ‘poor’”. Therefore, no case can fall under both “excellent” and “poor” category. In such circumstances, the afore contention raised is also to be rejected. Conclusion - i) It is declared that the respondent Corporation is entitled to proceed in accordance with the provisions of the MDG. ii) The time limit prescribed under Clause 4.2(viii) is only directory in nature. iii) The impugned orders are not in tune with the provisions of the MDG, since they are non-speaking orders. iv) The imposition of penalty under Clause 4.2 with reference to average commission cannot be said to be illegal. v) There is no ambiguity with reference to the rating prescribed under Clause 4.1 of the MDG. The impugned orders are set aside - Petition disposed off. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:i. Whether the respondent Corporation is entitled to impose monetary penalties based on the Marketing Discipline Guidelines, 2018 (MDG).ii. Whether the time limit prescribed under Clause 4.2(viii) of the MDG is mandatory or directory.iii. Whether the impugned orders comply with Clause 4.2(x) of the MDG.iv. Whether the imposition of penalties under Clause 4.2, with reference to the average commission, is illegal.v. Whether there is any ambiguity in the rating system prescribed under Clause 4.1 of the MDG.ISSUE-WISE DETAILED ANALYSIS1. Entitlement to Impose Monetary Penalties under MDGThe petitioners challenged the authority of the respondent Corporation to impose penalties under the MDG, arguing that it lacks legal force. However, the Court noted that a Division Bench of the Delhi High Court had upheld the MDG's provisions, allowing for monetary penalties, overturning a prior judgment that struck down certain clauses. Therefore, the Court concluded that the respondent Corporation is entitled to impose penalties as per the MDG.2. Nature of the Time Limit under Clause 4.2(viii)Clause 4.2(viii) mandates issuing a show cause notice within 30 days from the completion of the preceding quarter for violations of Targeted Delivery Time (TDT) norms. The Court analyzed whether this time limit is mandatory or directory, referencing precedents that suggest statutory time limits for public duties are typically directory unless non-compliance results in injustice or undermines legislative intent. The Court determined the time limit is directory, not mandatory, as it would not invalidate the proceedings if not strictly adhered to.3. Compliance with Clause 4.2(x)Clause 4.2(x) requires a 'speaking order' after reviewing a distributor's reply to a show cause notice. The Court emphasized the importance of providing detailed reasons for rejecting a distributor's explanation, aligning with administrative law principles that mandate clarity and reason in decision-making. The impugned orders were found to lack specific reasoning, merely stating that explanations were unsatisfactory without further elaboration, thus violating Clause 4.2(x).4. Legality of Penalties Related to Average CommissionThe petitioners argued that penalties based on the average commission, including for non-performance, were unjustified. The Court clarified that the MDG allows for a 20% penalty on the commission for 'poor' ratings, which is rational and within the Corporation's rights. The Court rejected claims of irrationality, noting the MDG's legal backing.5. Ambiguity in Rating System under Clause 4.1The petitioners contended that the rating system could lead to contradictory ratings of 'excellent' and 'poor.' The Court clarified that the system is structured to prevent overlap, with 'excellent' requiring over 85% delivery within two days and 'poor' involving more than 15% delivery beyond eight days. The Court found no ambiguity in the rating criteria.SIGNIFICANT HOLDINGSThe Court established several core principles and final determinations:i. The respondent Corporation is entitled to impose penalties under the MDG, as upheld by the Delhi High Court.ii. The 30-day time limit in Clause 4.2(viii) is directory, not mandatory.iii. The impugned orders are non-compliant with Clause 4.2(x) due to lack of detailed reasoning, rendering them invalid.iv. Penalties based on the average commission are legal and justified under the MDG.v. The rating system in Clause 4.1 is clear and unambiguous.As a result, the Court set aside the impugned orders and directed the respondent Corporation to reevaluate the cases in accordance with the MDG, ensuring compliance with the requirement for speaking orders.