The termination of a dealership agreement must be based on the contravention of its terms and must adhere to the rules and guidelines framed for that purpose.

2. These appeals by special leave impugn judgment and order dated 05th May 2015, passed in FMA 653 with 654 of 2012 which upheld the order of the Learned Single Judge in W.P.No.22993(W) of 2007 whereby the action of the instant appellant(s) in terminating the license of the instant respondent, was quashed and set aside.

Background facts

3. A brief review of facts is necessary to adjudicate the present controversy.

3.1 The respondent was appointed a dealer for petrol/diesel/motor oil/grease and other such products of the appellant(s) by way Dealership Agreement,¹[‘Agreement’] dated 1st February 1997.

3.2 On 18th August 2007, certain officials of one SGS India,²[‘Agency’] claiming to be an agency appointed by the appellant(s) arrived at the respondent’s petrol pump and took samples of High Speed Diesel (HSD) and Motor Spirit (MS).

3.3 The appellant issued show cause notice against the respondent dated 20th August, 2007, wherein the respondent was asked to submit a response to the alleged irregularities within a period of 7 days.

3.4 On the basis of the Preliminary Test Report, the Senior Sales Officer, Durgapur Sales Area informed the respondent of the suspension of supply with immediate effect.

3.5 The authorities of the appellant(s) conducted Joint Marker Test and the sample failed on such re-test as well. This is evident from the Analysis Report,³[At page 164 of the paper book].

3.6 The authority of the Agency to conduct such collection of samples was questioned by the respondent at the Regional Office of the appellant(s). However, it is alleged that without considering the same Marker Test was conducted on such samples.

3.7 Being aggrieved by the order of suspension of supply, the writ petition which eventually gave rise to the present proceedings was filed.

4. In allowing the writ petition filed on behalf of the present respondent, the Learned Single Judge observed as under:-

“…it appears that there are specific provisions under Clause 7 of the aforesaid order of 2005 wherein the Gazetted Officer of both the Central Government and the State Government and also the police officer not below the rank of Deputy Superintendent of Police or the authorized officer of the Company itself duly authorized, can take sample and get it tested. But it appears that in the instant case that was not done by the respondent authorities. The aforesaid officers only have the competence to collect the sample and get the same tested. Since the respondents did not follow the aforesaid procedure there is clear violation of the rules and regulation applicable in the cases.

xxx xxx xxx

In my view, the entire action on the part of the respondent authorities in suspending the supply as well as cancellation of the dealership of the writ petitioner is contrary to law, arbitrary and violative of principle of natural justice…”

5. On appeal, the learned Division Bench relied on the judgment of this Court in Allied Motors Limited v. Bharat Petroleum Corporation Ltd, (2012) 2 SCC 1. It was held that the Agency had “absolutely no authority to take samples or to make any seizure of any product” in violation of Clause 7 of the Control Order as also Section 100 of the Code of Criminal Procedure. Therefore, it was held that while the appellant(s) had the power to appoint agents for the purposes of administrative convenience, such agents cannot be allowed to flout the provisions of law, which they had in the present case. As such, no reason was found to interfere with the order of the Learned Single Judge and the same was upheld.

6. Hence, the present appeals.

7. We have heard Mr. N. Venkataraman, learned Additional Solicitor General for the appellants, and Mr. Rana Mukherjee, learned senior counsel for the respondent. The submissions made, are recorded briefly as under:-

A. Appellant

(i) It was submitted that Clause 4 of the Agreement provides that a license was terminable immediately on (a) the termination of the Agreement; (b) breach of any of the terms thereof which are described