Supreme Court Sets Aside High Court Order on Petrol Pump Dealership: Indian Oil Corporation Ltd. vs. Shashi Prabha Shukla (2017)

Date of the Judgment: 15 December 2017

Citation: Not Available in the source

Judges: N.V. Ramana, J. and Amitava Roy, J.

Can a High Court order the reinstatement of a cancelled petrol pump dealership, especially when the original cancellation was due to irregularities? The Supreme Court of India recently addressed this question in a case involving the Indian Oil Corporation Ltd. and a dealership that was initially granted under a discretionary quota. This case highlights the importance of fairness and transparency in the distribution of public resources. The Supreme Court bench consisted of Justices N.V. Ramana and Amitava Roy, with the judgment authored by Justice Amitava Roy.

Case Background

The case revolves around Shashi Prabha Shukla, who applied for a petrol pump dealership under the special discretionary quota of the Minister of Petroleum, citing her involvement in rural development and welfare of women, despite lacking a regular income. Initially, the Indian Oil Corporation (IOC) issued a Letter of Intent (LOI) on 04 October 1995, for a retail outlet dealership in motor spirit and high-speed diesel oil at Phutahia Chauraha, District Basti, Uttar Pradesh, under “A” category. A lease deed was executed on 16 September 1996, between the respondent and the Corporation for 30 years, with a monthly rent of Rs. 1650.

Though the dealership was declared under “A” category, the respondent claimed that the Corporation persuaded her to purchase the land and make investments to make it fit for installation, expending over Rs. 14 lakhs, for which she received a nominal monthly lease rent. Subsequently, this dealership was challenged in a public interest litigation, questioning the allotment of several retail outlets, LPG distributorships, and SKO/LDO dealerships granted by the Departmental Minister under his discretionary quota.

Timeline

Course of Proceedings

The Delhi High Court, in a Public Interest Litigation (PIL), scrutinized the allotment of 179 retail outlets (petrol pumps), 155 LPG distributorships, and 45 SKO/LDO dealerships from January 1993 to 1996, which included the dealership granted to the respondent. The High Court found that these allotments were made with favoritism and violated the relevant guidelines, directing their cancellation. The Court ordered that the original allottees stop operating the outlets by 1 December 1997, and the concerned Oil Corporation would take over the premises. The right to run these outlets was to be disposed of by public auction, with the original allottees allowed to participate. The respondent’s dealership was among those cancelled.

The respondent challenged the Delhi High Court’s order but was unsuccessful. Subsequently, the Indian Oil Corporation (IOC) issued an advertisement to auction the outlet, which the respondent challenged before the High Court of Judicature at Allahabad. The Allahabad High Court initially stayed the auction and later allowed the respondent to run the dealership until the auction was finalized. Eventually, the Allahabad High Court directed the Corporation to award a fresh dealership to the respondent under its new policy dated 12 February 2004, and restrained the Corporation from interfering with her possession of the premises.

Legal Framework

The judgment refers to Article 14 and Article 19(1)(g) of the Constitution of India. Article 14 ensures equality before the law and equal protection of the laws, prohibiting arbitrary actions by the State. Article 19(1)(g) guarantees the right to practice any profession, or to carry on any occupation, trade, or business, subject to reasonable restrictions.

The judgment also discusses the concept of public trust, stating that a public authority is entrusted with functions to perform for the benefit of the public, not for private profit. It emphasizes that statutory power conferred for public purposes is conferred upon trust, and it can be validly used only in the right and proper way. The judgment also highlights that public authorities must act reasonably, in good faith, and upon lawful and relevant grounds of public interest.

The Court also refers to Article 300A of the Constitution of India, which states that no person shall be deprived of his property save by authority of law. The High Court of Allahabad had held that the lease deed executed by the respondent did not subsist after the cancellation of the dealership.

Arguments

Appellant’s (Indian Oil Corporation) Arguments:

• The dealership of the respondent was cancelled by the Delhi High Court’s order dated 29 August 1997, which had attained finality. Therefore, no fresh dealership could be awarded to her.
• The advertisement dated 05 October 1998, and the corrigendum dated 13 October 1998, were in compliance with the directions of the Delhi High Court. The Corporation should have been allowed to complete the auction process.
• The lease executed by the respondent for the land in question remained valid, despite the cancellation of the dealership. The Corporation had the right to induct another dealer through the auction process to operate from the respondent’s land.

Respondent’s (Shashi Prabha Shukla) Arguments:

• Though the Delhi High Court’s order had attained finality, the Allahabad High Court’s direction to convert the existing dealership into a new one under the policy dated 12 February 2004, was valid.
• The Corporation, although required to provide the infrastructure for category ‘A’ dealerships, had asked her to make the arrangements on her own investments.
• The advertisement dated 05 October 1998, and the corrigendum dated 13 October 1998, were not in compliance with the directions of the Delhi High Court.
• The Corporation’s claim that the lease deed remained valid was untenable and violated Article 300A of the Constitution.

Sub-Submissions:

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the core issues addressed were:

1. Whether the High Court of Allahabad was justified in directing the Indian Oil Corporation (IOC) to award a fresh dealership to the respondent under its policy dated 12 February 2004, after her original dealership was cancelled by the Delhi High Court.
2. Whether the Indian Oil Corporation (IOC) had complied with the directions of the Delhi High Court in initiating the fresh auction process.
3. Whether the lease deed between the respondent and the Indian Oil Corporation (IOC) subsisted after the cancellation of the dealership.

Treatment of the Issue by the Court

Authorities

Cases:

• Akhil Bhartiya Upbhokta Congress vs. State of M.P. [2011] 5 SCC 29 – Discussed the norms for allotment of land, grant of quotas, permits, and licenses, emphasizing that the State cannot give largesse based on the whims of political entities. The Court held that every action must be based on a sound, transparent, and well-defined policy.
• Padfield v. Minister of Agriculture, Fisheries and Food [1968] AC 997 – Discussed the concept of discretion, stating that it must be used to promote the policy and objects of the Act. If the Minister misconstrues the Act, the court can protect the aggrieved.
• Ramana Dayaram Shetty v. International Airport Authority of India [1979] 3 SCC 489 – Discussed the role of the government as a provider of services and benefits, and the importance of fairness and transparency in awarding contracts and licenses.
• Natural Resources Allocation, In Re, Special Reference No.1 of 2012– Emphasized that the State’s actions must be fair, reasonable, non-discriminatory, transparent, and non-capricious, and must conform to rational norms guided by public interest.
• Center for Public Interest Litigation and others Vs. Union of India and others [2012] 3 SCC 237 – Discussed the need for a transparent and fair method for awarding contracts and licenses, especially for scarce natural resources, to protect national/public interest.

Legal Provisions:

• Article 14 of the Constitution of India – Guarantees equality before the law and equal protection of the laws, prohibiting arbitrary actions by the State.
• Article 19(1)(g) of the Constitution of India – Guarantees the right to practice any profession, or to carry on any occupation, trade, or business, subject to reasonable restrictions.
• Article 300A of the Constitution of India – States that no person shall be deprived of his property save by authority of law.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Akhil Bhartiya Upbhokta Congress vs. State of M.P. [2011] 5 SCC 29: The court relied on this case to emphasize that the State cannot give largesse based on the whims of political entities and that every action must be based on a sound, transparent, and well-defined policy.
• Padfield v. Minister of Agriculture, Fisheries and Food [1968] AC 997: The court cited this case to support the principle that discretion must be used to promote the policy and objects of the Act, and that courts can protect the aggrieved if discretion is misused.
• Ramana Dayaram Shetty v. International Airport Authority of India [1979] 3 SCC 489: The court used this case to highlight the importance of fairness and transparency in government actions, especially in awarding contracts and licenses.
• Natural Resources Allocation, In Re, Special Reference No.1 of 2012: The court applied the principles laid down in this case to emphasize that State actions must be fair, reasonable, non-discriminatory, and transparent.
• Center for Public Interest Litigation and others Vs. Union of India and others [2012] 3 SCC 237: The court referred to this case to underscore the need for a transparent and fair method for awarding contracts and licenses, especially for scarce natural resources, to protect public interest.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with upholding the rule of law and ensuring fairness and transparency in the distribution of public resources. The Court emphasized that the Indian Oil Corporation (IOC) and its functionaries had failed to comply with the directions of the Delhi High Court and had acted in a manner that suggested a pre-determined bias towards the respondent. The Court was also concerned that awarding a fresh dealership to the respondent would perpetuate the undue benefit she had received earlier due to an illegal and arbitrary process. The Court highlighted the importance of administrative probity and the need for public authorities to act in a fair, objective, and non-discriminatory manner.

Ranking of Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

The Court’s reasoning was influenced more by legal considerations (60%) than factual aspects (40%). The Court focused on the legal principles of public trust, fairness, transparency, and the need to uphold judicial orders. While the facts of the case were considered, the legal framework and the need to prevent the perpetuation of an illegal benefit were the primary drivers of the Court’s decision.

Logical Reasoning Flowchart:

The Court considered alternative interpretations, such as the possibility of allowing the respondent to continue the dealership under the new policy, but rejected them because they would undermine the purpose of canceling the original dealership and would reward the respondent for the initial illegal allotment. The Court concluded that the High Court’s direction was not in line with the principles of fairness and transparency.

The Court’s decision was based on the following reasons:

• The original dealership was canceled due to irregularities and favoritism.
• The Indian Oil Corporation (IOC) failed to comply with the directions of the Delhi High Court.
• Awarding a fresh dealership to the respondent would perpetuate the undue benefit she had received earlier.
• The lease deed between the respondent and IOC was extinguished with the termination of the dealership.
• The Court emphasized the need for transparency, fairness, and objectivity in the distribution of public contracts.

The Court quoted from the judgment:

• “The approach and attitude of the Corporation in making the advertisement dated 05.10.1998 with the corrigendum dated 13.10.1998 and in taking the apparently untenable stand that notwithstanding the cancellation of the dealership of the respondent, her land was available for the new process, is thus visibly militative of the rule of law besides being destructive of the salutary objective with which the High Court of Delhi had directed cancellation of the dealership/distributorship of the respondent along with others, being vitiated by the vice of nepotism and favouritism.”
• “In our view, the award of new dealership to the respondent would wholly undermine the purpose of cancelling her earlier dealership and annihilate the very objective of securing transparency, fairness and non-arbitrariness in the matter of distribution of public contract.”
• “The omissions and commissions do have the potential of suggesting pre-determined perceptions and motivations in aid of the respondent, resulting in such disagreeable culmination in her favour.”

There was no minority opinion in this case.

Key Takeaways

• Public authorities must act fairly, objectively, and transparently in the distribution of public resources.
• Discretion vested in public authorities is coupled with duty and cannot be unregulated or unbridled.
• Orders of Constitutional Courts must be complied with meticulously.
• Cancellation of a dealership due to irregularities cannot be circumvented by awarding a fresh dealership to the same individual.
• Lease agreements related to a dealership are extinguished with the termination of the dealership.
• Public authorities must not act in a manner that perpetuates undue benefits or rewards illegal practices.

Directions

The Supreme Court directed the Indian Oil Corporation (IOC) to:

• Take immediate steps to cancel the respondent’s dealership at her present location.
• Initiate a fresh process for awarding a new distributorship/dealership in the area at a location to be determined by the IOC, if it is considered necessary in the public interest, strictly in conformity with law and the constitutionally recognized norms of transparency, objectivity, and fairness.
• Conduct an in-house inquiry to fix the liability of the errant officials on the issue and decide appropriate actions against them within two months.
• Submit a report to the Supreme Court after completing the inquiry for further orders, if necessary.

Development of Law

The ratio decidendi of this case is that a public authority cannot circumvent a cancellation of a dealership due to irregularities by awarding a fresh dealership to the same individual. The Court also clarified that the lease agreement related to a dealership is extinguished with the termination of the dealership. This judgment reinforces the principles of fairness, transparency, and objectivity in the distribution of public resources and emphasizes the importance of complying with judicial orders. This case also highlights that public authorities must act in a manner that does not perpetuate undue benefits or reward illegal practices. There is no change in the previous positions of law, but it reinforces the existing principles.

Conclusion

The Supreme Court allowed the appeal, setting aside the Allahabad High Court’s order that had directed the Indian Oil Corporation (IOC) to award a fresh dealership to Shashi Prabha Shukla. The Court held that the original dealership was canceled due to irregularities and that awarding a fresh dealership would perpetuate the undue benefit. The Court also emphasized that the IOC had failed to comply with the directions of the Delhi High Court and had acted in a biased manner. The Supreme Court reiterated the importance of fairness, transparency, and compliance with judicial orders in the distribution of public resources. The Court directed the IOC to cancel the respondent’s dealership and initiate a fresh process for awarding a new dealership in the area.

Category

Parent Category: Public Law

Child Categories:

• Administrative Law
• Constitutional Law
• Rule of Law
• Public Contracts
• Discretionary Powers
• Article 14, Constitution of India
• Article 19(1)(g), Constitution of India
• Article 300A, Constitution of India

Parent Category: Contract Law

Child Categories:

• Lease Agreements
• Dealership Agreements

Parent Category: Indian Oil Corporation Ltd.

Child Categories:

• Dealership Allotment
• Public Sector Undertakings

FAQ

Q: What was the main issue in the Indian Oil Corporation Ltd. vs. Shashi Prabha Shukla case?

A: The main issue was whether a High Court could direct a fresh petrol pump dealership to be awarded to an individual whose original dealership was canceled due to irregularities.

Q: Why was the original dealership of Shashi Prabha Shukla canceled?

A: The original dealership was canceled by the Delhi High Court because it was found to be awarded through favoritism and in violation of relevant guidelines.

Q: What did the Allahabad High Court order in this case?

A: The Allahabad High Court directed the Indian Oil Corporation (IOC) to award a fresh dealership to Shashi Prabha Shukla under its new policy and restrained it from interfering with her possession of the premises.

Q: What did the Supreme Court decide in this case?

A: The Supreme Court set aside the Allahabad High Court’s order, holding that awarding a fresh dealership would perpetuate the undue benefit from the original illegal allotment. The Supreme Court emphasized the need for fairness and transparency in the distribution of public resources.

Q: What were the key directions given by the Supreme Court to the Indian Oil Corporation (IOC)?

A: The Supreme Court directed the IOC to cancel the respondent’s dealership, initiate a fresh process for awarding a new dealership in the area, conduct an in-house inquiry to fix the liability of errant officials, and submit a report to the Court.

Q: What is the significance of this judgment for public authorities?

A: This judgment underscores that public authorities must act fairly, objectively, and transparently in the distribution of public resources and that they must comply with judicial orders. It also emphasizes that they cannot perpetuate undue benefits or reward illegal practices.

Q: What happened to the lease agreement in this case?

A: The Supreme Court clarified that the lease agreement related to the dealership was extinguished with the termination of the dealership.