The presence of an arbitration clause in a contract bars the entertainment of a writ petition, and a party cannot challenge the constitutional validity of a clause in the agreement. Additionally, the termination of a distributorship agreement under Cl. 27(n) must be based on specific acts and a reasonable opinion formed by the Corporation, and not done arbitrarily.

M. Rama Jois, J. - In this writ petition the petitioner has prayed for a declaration that Cl. 27(n) of the agreement regarding the distributorship of Liquified Petroleum Gas entered into between him and the respondent-Indian Oil Corporation, as void as offending Art. 14 of the Constitution of India and for the issue of consequential orders quashing the order by which the said distributorship agreement between the petitioner and the respondent Corporation was terminated.

The facts of the case, in brief, are as follows : The petitioner was appointed as a Distributor of Liquified Petroleum Gas (LPG for short) for Hebbal and Yelahanka area in the City of Bangalore, on 10-2-1984. An agreement was executed between the petitioner and the respondent - Indian Oil Corporation ('the Corporation' for short) on 5-3-1984 in which the terms and conditions under which the petitioner was appointed as a Distributor for the LPG were set out. On 29-7-1987 the officers of the Corporation carried out a surprise inspection of the premises of the petitioner in which he was carrying on his business. Thereafter, by communication dt. 11-8-1987 the distributorship agreement between the petitioner and the respondent was terminated under Cl. 27(n) of the agreement. Thereafter, the petitioner has presented this writ petition.

Sri R.N. Narasimha Murthy, the learned counsel for the petitioner, in support of the prayer made in the writ petition, submitted as follows : The respondent Corporation was a company sponsored by the Government of India. Therefore, it is 'State' as defined in Art. 12 of the Constitution. With the object of ensuring guaranteed distribution and utilisation of petroleum products, which was being distributed and marketed in India by a foreign company called 'Esso Eastern Inc', the Esso (Acquisition of Undertakings in India) Act, 1974, was enacted by the Parliament. Section 7 of the said Act provided that after the transfer and vesting of the undertaking which was acquired under the Act, in the Central Government, the Central Government was empowered to transfer the right, title and interest and the liabilities of the company in a Government company. Similar provision was made in the Burmah Shell (Acquisition in India) Act, 1976 and The Caltex (Acquisition in India) Act, 1977. It is pursuant to the notifications issued under S. 7 of the respective enactments the right, title, interest and liabilities of the erstwhile company, which stood vested in the Central Government, were transferred to the Corporation. See Som Parkash v. Union of India (AIR 1981 SC 212 paras 8, 30 and 41). It is pursuant to such transfer under S. 7 of the respective enactments, the respondent-Corporation is carrying on its activity of distribution of petroleum products in India. Consequently, the Corporation has to conform to the fundamental rights incorporated in Part III of the Constitution. Therefore, both at the time of selecting and appointing distributors for the supply of LPG as also at the time of termination of distributorship, the Corporation has to act in a manner not violative of Art. 14 of the Constitution. Clause 27(n) of the agreement confers arbitrary power on the Corporation to terminate the distributorship agreement without assigning any reason and therefore the said clause is patently arbitrary and violative of Art. 14 of the Constitution. Consequently, the said clause, as well as the impugned order by which the distributorship agreement was terminated, are liable to be declared invalid and a direction has to issue to the Corporation to continue the distributorship until it is terminated in accordance with law.

As against the above submission, Sri P.V. Shetty, the learned counsel for the Corporation, urged the following points :

(i) There is a clause in the agreements which provides for arbitration in the event of there being any dispute between a distributor and the Corporation, In view of the said clause, even a suit cannot be filed as it is