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Indian Oil Corporation Ltd. v. Niloufer Siddiqui & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 7266 of 2009)Decided 1 Dec 2015
Civil Appeal No. 7266 of 2009
Justice V. Gopala Gowda · Justice Amitava Roy

Background

In 1971 Indian Oil allotted an LPG distributorship in Muzaffarpur, reserved for ex-servicemen, to two ex-army partners. The company never sent the standard agreement it had promised, and the allotment letter allowed termination on 30 days' notice without giving any reason. After a partner sought to transfer his share to his wife, the company terminated the distributorship in 1978. The partner's suit was dismissed by the lower courts, but the High Court restored the distributorship.

Decision Breakdown

The Court held that the standard agreement was never signed or accepted, so its clauses could not bind the distributors, and the company itself had breached its promise to send it. It found the clause allowing termination without reason unconscionable, because the distributors had no bargaining power and depended on the business for their livelihood, and read it down in light of Article 14. Since the company is a government instrumentality, its conduct had to be fair and reasoned. The Court held that the bar on specific enforcement in Section 14(1)(c) of the Specific Relief Act did not apply. The appeal was dismissed, the company was directed to restore the distributorship, and it was ordered to pay Rs. 1 lakh in costs.

Lesson Learnt

A government-owned company cannot rely on an unsigned form agreement to cut off a weaker party's livelihood, and it must act fairly and give reasons when it does so. Individuals who depend on a state-run business arrangement can challenge an unreasonable termination.

Official source (sci.gov.in)View Judgment (PDF)

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